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Digitized from Box 2 of the White House Press Releases at the Gerald R. Ford Presidential Library
FOR IMMEDIATE RELEASE
SEPTEMBER 6, 1974
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS CONFERENCE
OF
ALAN GREENSPAN, CHAIRMAN
COUNCIL OF ECONOMIC ADVISERS
THE BRIEFING ROOM
AT 10:49 A.M.
MR. GREENSPAN: Gentlemen, I don't think there
is anything very much to summarize. Most of you were :
there, and I am scarcely about to try to give you a
summary which cannot conceivably be right.
So, I will just open up for questions and
hopefully I can answer whatever you ask me.
Q
Could you summarize the meeting for us?
(Laughter)
That is a serious question.
MR. GREENSPAN: Let me tell you what to do.
Rather than summarizing it in concrete issue forms, let
me summarize it with respect to what we intended and what
we achieved, leaving the content question out.
It was our purpose to attempt to develop a two-
day meeting with a representative group of economists which
would enable us to put on the record essentially for
Congress, the American people and the President, a spectrum
of views on the very serious problems which we confront.
Now, taking that as the purpose of the meeting,
I would say that we came in pretty much on schedule so
far. Now, remember, we do have another meeting on the 23rd
and, while I hope we will be able to say the same thing
at the end of that meeting, obviously, I am not about
to make that sort of forecast.
Q
Mr. Chairman, as I understand it, the purpose
of reducing Federal spending and raising interest rates
is to dampen demand on the economy. Well, if there is
slack in the economy, what is the purpose of pursuing this
policy?
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- 2 -
MR. GREENSPAN: Well, first, I wouldn't quite put
the policy in that form. I would say the policy essentially
is to suppress inflationary pressures. Now, the purpose of
reducing Federal expenditures is perhaps -- just to slightly
over-simplify it -- is to reduce the burden on the capital,
that is the national capital markets, and hence avoid the
process which we have seen progressively in recent years of
very heavy financing, not only of Federal Government
securities, direct securities, so-called direct Treasury
issues, but also very significant amounts of off-budget
financing which has essentially elbowed out of the capital
markets many private borrowers.
These, in turn, have felt it necessary to go to
the banks and the pressure on the banks which reflects itself
in the money markets and hence directly interfacing with the
Federal Reserve system, has caused very great pressure
both on interest rates and, two, on a growth in the money
supply which has been in excess of the rate of increase
in production.
And so, as a consequence, what we have seen is
essentially a financial process which has aggravated our
inflationary system.
Now, I am not saying that is the sole cause of
inflation and the issues I raise here are, at least in
the profession, debatable. But I think that the case that
we have is a strong one and I am fairly well convinced
at this stage that if we were to do one thing and one
thing only, that is cutting the growth in Federal expendi-
tures, reducing the pressures on the financial markets,
this would enable the Federal Reserve to not necessarily
ease up in this so-called monetary aggregate, but what
would occur is that the Federal Reserve would find that
under a certain posture it might take, it would, if they
did not have very heavy pressures from the financial
capital markets, find that interest rates would slip
out from under them, so to speak.
And so it is our view -- and I think one which
I am pretty certain will work if we can engineer it --
that if we can bring down this process, suppress it, we
will finally get at the roots of the inflationary pressures.
Now, higher interest rates are not a policy.
There is no attempt to increase interest rates to do anything.
That is an unfortunate by-product of other things that must
be done, and at this particular point the only way to get
interest rates down -- and that would be the best sign
I could imagine at this stage -- would be to essentially
remove the pressure from commercial banks, and that can only
be done by very significantly altering the pressure which
direct and indirect Treasury borrowing has done.
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- 3 -
Q
Mr. Greenspan, you said that the purpose
of these meetings is to put on the record for the Congress,
the American people and the President, a cross-section of
views. What actually is accomplished by that?
MR. GREENSPAN: Well, I think several things.
First of all, it is important to get the best judgments,
or to get a judgment of who thinks what about what,
people who have been studying the issue as professionals.
You get from this type of meeting not necessarily
great degrees of agreement. We will get some and I think
everyone, including myself, may be surprised in many areas
where there is significant agreements.
But there really is another purpose in the whole
process itself. It starts a dialogue not only in the
profession itself, but pretty much throughout the country
to have everyone focusing on these issues, and what it
does, it elicits all various pieces of information which
are the essential ingredients of understanding the
theoretical structure of what we are looking at.
Economics may be the profession which is looking
at this problem but it is so vast and so complex that you
need inputs from virtually every sector of society, and one
of the purposes of the summit, you know these various so-
called pre-summit meetings -- I understand that is hard
to describe how you define these particular things -- but
the various purpose of this is to largely try to put
into one place on the record at one time a cross-section of
all of these particular views.
Q
May I follow up on that question? Since
these views are largely known and since you have said that
you feel that action at this time would not be appropriate
or of profit --
MR. GREENSPAN: I don't recall making that statement.
Q
You said that action for action's sake is to
be avoided.
MR. GREENSPAN: Is inappropriate, surely, certainly.
That is not the same statement as saying I would not recommend
action. I mean to say that before you do anything, try to be
certain that you know what you are doing.
Q
With that premise as you have stated it,
is one of the purposes of these meetings then simply to
buy time to enable the present policies to work and ward
off criticism that nothing further is being done while
creating the atmosphere that something is being done in
the sense of meetings being held?
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- 4 -
MR. GREENSPAN: That is not my understanding or
purpose.
Q Were you surprised, Mr. Greenspan, by the
lack of apparent support yesterday; first, for a so-called
"quicky" cut in Federal expenditures during the current
fiscal year, and second, for shooting for a technically
balanced budget in fiscal year 1976 in the face of a
slackening economy where Government income can't be
estimated with precision?
MR. GREENSMAN: I think certainly the question
of shooting for a balanced budget as a statistical goal
is a very elusive one, because one never knows what
revenues are going to be. To shoot at a specific expendi-
ture ceiling or level is a very important one.
I think that the issue of the impact of Federal
expenditures on employment and unemployment and the issues
which were discussed yesterday will be one of the issue
elements that we will put on the agenda for the September 23
meeting which will be discussing precisely this question.
Q
Didn't you sense a feeling that the trade-
off between a cut in Federal expenditures and unemployment
was such as really not to be worth the bargain, that
if you really wanted an effective fiscal policy with
immediate impact, the avenue, the appropriate avenue,
would be some sort of tax increase?
MR. GREENSPAN: I would say that that is an
issue of significant professional disputes and it
will occur on the 23rd.
Q
Mr. Greenspan, what do you think would be
the result or results of a moderate easing of monetary
policy at this time?
MR. GREENSPAN: It depends on what the word
"moderate" means.
Let me take it from, say moderate plus,
depending on how the definition goes. It serves no useful
purpose to significantly ease monetary policy because at the
moment, if that were done in the current context and the
tremendous pressure in the capital markets, you would
get a short-term sense of well-being, sort of an easing
of very critical pressures, and there would be a hiatus
which would make everything appear to have improved very
considerably for a period of time -- three, six, nine or
twelve months -- I wouldn't know.
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However, almost certainly the increased money
supply growth which would attend such an easing would
put us back in a situation that we currently find
ourselves and perhaps even worse.
Now that is not the same statement as saying
that one doesn't ease at all and, having just come on
board and not having been involved in any discussions with
the people at the Fed -- like I do not know what is
in fact going on -- so I am in sort of the same boat you
are, or as I was back several weeks ago.
I am aware, however, that the Fed is not
insensitive to all events that are going on. I think
that goes without saying. And they have a great
responsibility. I mean it would be very easy for them
to react to very strong obvious short-term pressures to
ease up very quickly. But the people, or many of the
people who are arguing for that, I don't think have the
responsibility that the Fed has.
At this point I would be hesitant to comment
on this specific sort of thing because, first of all, my
knowledge is not there and I suspect where my knowledge is
basically there, then I could not talk anyway.
Q
One of the things, or two things, that were
mentioned, but were not really gone into in any depth
yesterday, one was the impact of -- for want of a better
phrase -- renegade large corporations in a free-market
economy who operate in effect like robber barons against
the national interest.
I am sorry to use those emotive terms, but the
point was raised that some of the things they do -- for
instance, the auto price hike -- are counter productive
to national goals.
Now what is your position on this, and will the
Administration take a position on this?
MR. GREENSPAN: First of all, remember that in
order -- stripping out the emotive words and talking
basically about the relationship between production trends and
prices -- I mean the specific question was how is it
conceivable that you would have a situation in which the
demand would be weak as it is in the automobile industry
as it was until very recently, and nonetheless you get
a price hike of the sort that we have seen.
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- 6 -
Now, remember, there is a theory underlying that
particular cause of this relationship and that implicit
in everybody's view of these various type of events is a
conception of the way the system should function.
And to say that the system is functioning
incorrectly or that competition isn't working, presupposes
a concept of what the relationships should be in this
industry. My view is that the system functions rather
well. I don't want to specifically comment on the
particular industry issue because I am not involved in
that and I, frankly, haven't given it terribly much
thought.
However, that will be discussed in the abstract,
you know, the whole question, in the September 23 meeting.
Q
Would you in principal favor giving more
teeth to the regulatory agencies and in particular
enforcing the current antitrust laws that are in the book?
MR. GREENSPAN: Well, first of all, I don't
have anything to do with that and I don't think the
Economic Council would or should.
Q
Do you have any opinion on it?
MR. GREENSPAN: I have a personal opinion, but
that is a private personal opinion which would have, in my
view, no effect and shouldn't have any effect on Federal
policy. As a consequence, what I have said on that issue,
which I have said in the Senate Banking Committee hearings,
are my personal beliefs. But I also indicated there that
I consider that wholly outside the realm of my particular
job here.
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- 7 -
Q
Mr. Greenspan, the Chrysler Corporation is
saying that their automobiles will increase $400 to $500
a model next year. Is that an acceptable increase as far as you
are concerned?
MR. GREENSPAN: That is obviously the same question
that has just been asked. I have no intention of getting
involved in that and I am trying to not get involved and
hope I succeed.
Q Mr. Chairman, coming back to the monetary
policy question, your response was couched in relation to
a moderate ease in monetary policy, but I think the sense
of the suggestions yesterday didn't go that far. People
talked of a slight or modest backing away from the most
restrictive policy. Would you address yourself to the
question in that form? Would you be sympathetic
to that kind of suggestion?
MR. GREENSPAN: I don't think it is appropriate
for the Chairman of the Council of Economic Advisers
to get involved on an issue which is essentially an
issue of the Federal Reserve. Why don't you ask them?
Q Mr. Greenspan, isn't it a function of
the Council of Economic Advisers to concern itself with
such fundamental things as price increases in the auto
industry? How do you see your role as different from your
predecessor who didn't hesitate to comment on questions of
that sort?
MR. GREENSPAN: My view, as I stated previously,
is the Council of Economic Advisers should be advisers on
matters of research and basic economics. Now, what that
will entail, as far as I am concerned, is to put before the
President all of the various opinions and options stated
by the profession. In other words, I consider it my job
to make available to the President not only the views of
the Council of Economic Advisers, but also as best I can, what
others are saying and in fact, as part of that, we intend to
have -- it is as yet undecided whether it will be formal
or informal -- a group of outside professional economists
meeting with us periodically on specific professional issues
and assist us in developing the types of inputs that we
will present as the Council into the President.
Now, what I am getting at here is that we do not --
we are trying to, in a sense, depoliticize the Council, which
means essentially that while we will present all views and
give the various types of analyses, we will avoid getting
involved in issues such as this.
Q
To follow that, then, who is the Ford Administra-
tion's chief economic spokesman as of this moment?
MR. GREENSPAN: At the moment, it is the President
of the United States. I cannot answer that because I don't
know the answer.
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- 8 -
Q
Mr. Greenspan --
MR. GREENSPAN: I am not.
Q
-- you have just given us an argument in
favor of a tight budget and then have declined to discuss
such direct intervention methods as an anti-trust enforce-
ment and direct pressure on the auto industry, et cetera.
Should we draw the conclusion from that that your advice is
that the budget is the way to handle the present problem
without direct intervention?
MR. GREENSPAN: Let me put it this way: There
are a number of economists and advisers around whose input
will go in as well as perhaps unprecedentedly significant
amounts of external input.
My personal view, and I think it is stronger
than that, my professional view is that in the longer term,
what we have to do is cut the rate of growth in Federal
spending. Now, I base it on -- and perhaps we
may be making some presentations along this line at a later
date -- I base this view on an analysis of what inflationary
patterns have been for the last 50 years, really, and in
an attempt to determine actually what has caused the
excessive growth in monetary expansion, in excess of
the rate of growth in output and, hence, what has caused
the price inflation.
Now, I am not saying that if you solve the
budget problem, that everything else will go away. I don't
believe that. However, I do say that if you don't solve
the budget problem, everything else is treating symptoms.
Q
Sir, can I ask you this: Given the increasing
shortage of raw materials and commodities, which again is
a theme that was only very briefly touched on, but seemed
to many to be an underlying theme of inflation, what is
your general approach to the concept of growth in the pri-
vate sector, per se, where you have diminishing raw materials
which in turn fuel inflation as production increases?
MR. GREENSPAN: Well, first, let's define
what we mean by shortage of raw materials. There is a
shortage but the shortage is actually in processing
capacity. We, for example, don't have a shortage of
iron ore or iron-bearing materials, but we do have a
shortage of processing facilities. We don't have a short-
age of bauxite or alumna-bearing clays, but we do have
a shortage at this point of production facilities. And
you can go down the line, otherwise, the same in paper and
paper availability.
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- 9 -
There are reasons why we have capital short
positions in the United States, and that really gets to
the more fundamental question, not of material shortage
but capacity expansion.
So, it is not raw materials in the sense that
we usually mean them, but it is inadequate facilities
to produce the quantities of finished materials that are
required to meet the aggregate of demand of the
American economy.
Q
Are you able to say, sir, what President
Ford got out of this meeting yesterday? Were there any
one or two recommendations that he mentioned to you?
MR. GREENSPAN: I have not spoken to the President
since the meeting ended, so I don't know.
Q
Mr. Greenspan, do you agree with Mr. Friedman
that the thrift institutions will have to be bailed out
and, if so, what form would you prefer?
MR. GREENSPAN: That they have a definite problem,
I think, is unquestioned. So long as you have short-term
money market rates significantly above the income yields
of the asset side of the savings and loan and thrift
institution generally, portfolios, then clearly there
is a latent problem which could be considerable if interest
rates continued higher.
The obvious, in fact, the only really long-term
stable solution is to bring short-term money market rates
down.
I trust that Professor Friedman's forecast is
wrong, but I don't know, we are all forecasting essentially,
we are really all forecasting short-term interest rates, and
that is a very rough number to forecast. One of the
reasons I would very much like to see major progress
as soon as possible on the Federal budget, as I think I
indicated yesterday, there is a large psychological
element in the money market. There is an inflation premium
in the interest rates and, as a consequence of that, if you
introduce some very credible -- and I underline the word
"credible" -- curtailments in the growth of Federal
expenditures and hence, on potential easing on direct
and indirect, that is, guaranteed credit programs and
so forth, I think that we might find that the interest
rates, the nominal interest rates fall, and that, of course,
would be the simple, best long-term solution to the problem
that the thrift institutions have at the moment.
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- 10 -
Q
Mr. Greenspan, what is your opinion on the
call for an international conference on inflation? Do
you expect the President to go along with that and call one
following the domestic summit?
MR. GREENSPAN: I really can't answer that. All
I can indicate to you is to repeat what the President said
yesterday, that he was obviously aware of the United
States relation to the rest of the world on this issue and
will act accordingly.
Q
Will it be your task, Mr. Greenspan, to
compile the recommendations that come out of this
summit for the President, to put them on paper and who
will translate them after that?
MR. GREENSPAN: That has not been decided as yet.
Q
Do you foresee a tax increase or a tax
decrease?
MR. GREENSPAN: At the moment, I foresee neither.
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- 11 -
Q
Mr. Greenspan, there seemed to be general
agreement among almost all the economists yesterday that
what some call the "sacred cows" in Government regulations
and policies that subsidize certain industries or help
agricultural prices, should be eliminated. I wondered
if you agreed with that and if that is something the
Administration could be taking action on relatively soon?
MR. GREENSPAN: As a professional economist,
of course.
As to the second part of your question, I
would defer because I don't know the answer to it.
Q
Mr. Greenspan, would you comment perhaps
on Mr. Levy's presentation yesterday and specifically
his warning regarding the shortages that some countries
may find in their ability to pay for oil?
MR. GREENSPAN: There is no question at the
moment that the high price of oil is generating very
considerable payment requirements on the part of the
major oil importing countries. These can very easily
be maintained in the short run, because there are, obviously,
adequateresources.
But he is raising a very important problem,
namely, that the level at which prices now are in the
world oil markets does generate a very heavy burden, and the
way to look at that is not so much the flows of monies
from, say, the oil importing countries to the oil exporting,
but you also have to look at the so-called balance sheet
effects within the oil importing countries.
What is happening -- and I fear that we have
seen this in several countries already -- is a worsening
in the external liability position and, if you project
very long into the future -- and I just don't know how
long, you know, several years or more -- at these types
of flows without significant reinvestment of the funds,
not, incidentally in direct debt instruments, because that
just merely shifts the debtor from one place to another
-- then you do have a problem.
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- 12 -
And I think there is a potentially serious one
here, and I think it requires considerable effort to avoid
this going on in the same form for an extended period of time.
Q Mr. Greenspan, for the fellow who can't
read a balance sheet and doesn't know about the Fed, how
long can he anticipate that he will have to put up with
the high prices in such luxuries as food, clothing, and
shelter?
MR. GREENSPAN: You are talking about the consumer
in the United States?
Q
I am talking about the retired person, a
fellow who lives on a fixed income in the United States.
How long will he have to put up with this, or will he
find one morning between now and the summit that the banks
are closed?
MR. GREENSPAN: I think that he might, but it
will be a Sunday. (Laughter)
Q
Mr. Greenspan, it is a serious question.
MR. GREENSPAN: We know several things about
what is happening. First, agricultural prices on the farm
level until very recently -- I guess it was early June
through maybe about three or four weeks ago -- rose enough
to lead one to believe that we will have some turn-around
in a short acceleration of food prices for the next
several months.
I don't know how much we can project the most
recent decline -- and there has been a surprising decline
in farm prices recently. If that continues, then this
little retail food price will be a blip.
But what we are trying to forecast is essentially
the status of the crop and that really is very rough. And,
as you well know, it depends very substantially on the
harvests and what the growing season is from here until
we get the stuff out of the ground.
On things like clothing, we do know that there
was some fairly strong increases coming partly from all the
cotton crops and big increases in synthetic fibers. There
was a fairly substantial increase in the price of synthetic
fabrics coming from the textile mills earlier this year.
I think it slowed down very measurably since, as I
recall, and that is going to work its way into a apparel prices
and I would not be surprised to see apparel prices somewhat
higher as a reflection of that. But again, that may be
another filler.
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- 13 -
Q
Did you say higher?
MR. GREENSPAN: Yes, somewhat higher.
Now, when you are dealing with things like this,
you are doing price forecasting. I think we should all be
terribly aware this is one of the most difficult things to
do and, even though economists get up in front of you and
spout exact forecasts and tell you all about it, we are
on the margin of guessing, maybe a little better than
guessing, and maybe we know a little bit more than the
average person, but I want to emphasize that the profession
of price forecasting is an extremely primitive one and I
think that hopefully, our profession has gained a good
deal of humility on this subject of late.
Q
About a year ago you wrote in The New York
Times that much to your distress, the Government was
becoming involved in and responsible for everything down
to the price of popcorn and what the economy really needed
was a strong dose of "do nothingism". I wonder a year
later, in general, is that your prevailing philosophy?
MR. GREENSPAN: Let us remember what was going
on a year ago. A year ago, in fact, the Government was
involved in everything down to the level of popcorn.
Since then, not only popcorn has come out from under
price restraint, but virtually every other aspect of the
economy. So, as you may recall, that article was essentially
my view, which I still hold, on the inefficacy of wage
and price controls as an anti-inflationary device.
Q
Could you see any circumstances in the
economy, sir, any circumstances whereby you would change
your position on the need for wage and price controls?
MR. GREENSPAN: You are trying to indicate to me --
first of all, let me just go back a minute. I am looking
at an economy which is basically something which I view
from day to day, month by month, year by year, and I have
a general conception which does change, obviously, as new
evidence comes in.
Now, if you are going to say to me, under any
conceivable occasion, will I change a view which is based on
facts and realities, will I never change it? It is an
odd sort of question. I mean, if you want to be exactly
right, the answer is, of course not. If you literally
ask me to construct some incredible, bizarre set of
affairs, sure I could. But if you are asking me is that
likely to happen, no.
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Q
You were talking a bit earlier about de-
politicizing the Council of Economic Advisers, which seemed
to imply a lower public profile for the Council. In
that connection, I would like to ask you if you plan to
continue the monthly press briefings that your predecessor,
Dr. Stein, used to hold?
MR. GREENSPAN: Yes, we will, but I will try to
restrict them to non-political issues and questions of
what is going on in the economy, and to whatever extent other
issues are involved, I will try to confront myself with
them.
Q Mr. Greenspan, your predecessor used to answer
a monthly question that was put to him in very simple and
succinct terms. I wonder if you could do the same? What
is the outlook for the housewife in this country?
Q
In what way?
MR. GREENSPAN: Yes, in what way?
Q
Concerning the inflation.
MR. GREENSPAN: I appreciate the amendment. (Laughter)
I think that we have got continuing concern about
the outlook and I think, in sort of extending on my remarks
from yesterday, inflation is just not about to go away
quickly. I think we would be naive if we believed that. It
has taken a very long time in coming. It is going to require
a great deal of work to discuss it and so long as we have got
the type of inflation that we have, I think that the average
housewife is concerned and I think she should be.
You know, if you sit there and if you know that
you have to meet your monthly rental or utility bills
or what have you, and prices are stable, you can pretty
much plan what that is going to be six months, nine months
out and you can really plan your family finances, which
means you can plan your family.
One of the great casualties of inflation has been
the gross increase in uncertainty and in many instances,
fear that this just sheer instability in the price level and
the incapability of having some reasonable assurance of
what prices are six months, nine months out, I think the
loss of that assurance is a very fundamental loss for the
American housewife.
We look, as economists, at statistics and we
worry about money supply and the like, but the real
casualty here is the American people and I think this
is all the more reason why it is absolutely essential
that inflation be brought under control and be brought
under control as soon as is practicable.
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Q
Dr. Greenspan, yesterday a number of
suggestions were made of things that the Government
might do to prevent the current high prices and infla-
tionary expectations from becoming fully reflected in new
wage contracts and hence, setting off a new wage-price
spiral. Do you think there is anything the Government
can or should do in that direction?
MR. GREENSPAN: This is the type of issue
which is under discussion and thought at the moment.
Q Dr. Greenspan, what will raising the unemploy-
ment rate do to instill confidence in the American public?
MR. GREENSPAN: First of all, one doesn't raise
the unemployment rate.
Q Well, let it go up?
MR. GREENSPAN: Well, there is a different way
of putting this thing. What you are required to do
insofar as policy is concerned is to put into position
realistic elements which will diffuse the inflation. Now,
at this particular moment, I don't think there is any
policy which can significantly lower the unemployment
rate and hold it there. Right now, the reason we have
got a turgid economy, the reason we are likely to get
some further increase in unemployment is the elements of
inflation psychology which are building in and have been
building in for the last six, nine, or twelve months,
into the business decision-making process, creates a
level of real demand which is below capacity, so to
speak.
I know of no way, and I know of no one who
seriously suggests that we can boost this radically --
I mean, we can change the situation in any radical way in
the short-run.
So, in the first instance, yes, I can conceive,
if you ask me, of all sorts of policies which would prevent
the unemployment rate from going up, I submit to you that
the consequences of those policies, you would find so
distasteful and be so distressful to the American people
that if I am still sitting here a year from now, next the
question would be, what are you going to do about
"X", which is the consequence of the policies that were
implemented the year previously.
I think it is a very serious problem. I think
that the only way to really restore equilibrium to our
economy is to think in terms not of trying to get one
statistic up or one statistic down, but focus on the best
way we can restore the economy to a viable, stable, non-
inflationary growth path, which has essentially been the
heritage of this economy.
THE PRESS: Thank you.
END
(AT 11:37 A.M. EDT)