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Digitized from Box 5 of the White House Press Releases at the Gerald R. Ford Presidential Library
FOR IMMEDIATE RELEASE
DECEMBER 4, 1974
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS CONFERENCE
OF
WILLIAM E. SIMON
SECRETARY, DEPARTMENT OF TREASURY
AND
ALAN GREENSPAN
CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS
ROOM 450
OLD EXECUTIVE OFFICE BUILDING
10:30 A.M. EST
MR. WARREN: Good morning.
We thought it would be helpful if we asked
Treasury Secretary Simon, who is Chairman of the Economic
Policy Board, and Dr. Alan Greenspan, Chairman of the
Council of Economic Advisers, to come out this morning
and give you a general discussion of the economic situation
as we see it and to take your questions.
This briefing, of course, is on the record, and
I believe you have some information which has been provided
to you already.
I will turn' it over to Secretary Simon, who
will give you some brief remarks and go straight to your
questions.
Mr. Secretary.
SECRETARY SIMON: Thank you, Jerry.
I think sessions like this are extremely useful,
and I would hope to have the opportunity with Alan to
have more of them in the future.
I want to make my remarks necessarily as brief
as possible this morning so I am not going to go into
the many myths that there are on this very complex
subject of the economy, but just basically hit a couple
of them and then field your Qs and As, or field your
Qs, hopefully, with As.
MORE
- 2 -
As a number of polls show, the American people
are, to put it mildly, very gloomy and apprehensive
and indeed some people are frightened about our economy.
To a degree, I would say many of the fears are
well-founded, reflecting as they do the severe inflation
we have in our country and the recession that is going on
simultaneously.
As serious as the problems are, however, the
gloom seems to be much more widespread and much deeper
than really is warranted by the current conditions.
At least one cause of this deeper pessimism appears to be
the number of myths, as I said a minute ago, about our
economy having taken hold, and they really complicate
our efforts to develop responsible and effective and
credible policies here in this country.
I would like to talk just about two of these
myths today. This is where you ladies and gentlemen,
with a great responsibility that you have of informing the
American people, can be of tremendous assistance. Under-
standing the reasons, there are many who believe that this
first myth -- we don't know how we got here and we don't
know how we are going to get out of it, either.
So, you have to start with an understanding for
the reasons of our current inflation. Obviously, when
we sat down to develop our set of economic policies, we
had to first define the causes and then define the solutions
to match these causes.
The reasons for our current inflation -- recession
was the beginning, and we can, contrary to the myth,
identify these causes of our present stagflation. We
have had for many years in this country a love-hate
relationship with inflation. We hate inflation and yet we
love everything that causes it.
For more than a decade and let's talk about
the fundamentals, first, because they are the most
important -- for more than a decade we spent more than we
could afford and more than we are willing to pay for,
thinking that all of the social problems and other
problems in this country were going to be solved by
just throwing money at it.
As a result, we have created enormous explosions
in Federal spending. Just two cases of that are our
budget doubling from $134 billion in 1966 to $268 billion
in 1974. Our budget was $100 billion in 1961, and this year
is over $300 billion.
MORE
- 3 -
When one measures it by the decade, looking at
1955 to 1965 where we had noninflationary growth in
our economy, where Government spending increased at
approximately 6 percent a year versus over 11 percent
in the decade 1965 to 1974, when the Federal budget runs
a deficit year after year, especially during the times of
high economic activity, such as we experienced in the
mid-sixties, it becomes a major source of financial and
economic instability.
The huge deficits that we had in the sixties
and the seventies added enormously to aggregate demand
for goods and services, and they have been directly
responsible for upward price pressures.
Heavy borrowing that forces the Treasury to do
this in the marketplace has been an important contributing
factor in the persistant rise in interest rates and all
the strains that have developed in our financial markets,
but worse still in what is finally eaten away at the American
people.
It destroys the confidence of the American
people in their Government and the Government's ability
to run their economy properly. That isn't even to
mention the off-budget items that have exploded really
at the start of 1964, 1965, the asset states when we look
at the budget deficit year that on amunified basis was
$3.5 billion.
When one adds the off-budget items in that,
having the same shortrun inflationary impact, it was over
$20 billion. All of these factors are on the spending side.
But, of course, monetary policy is also the
culprit. For a decade we have had far more monetary
expansion and stimulus than is needed to sustain
reasonable inflationary growth. Money supplies expanded
at a rate of over 6 percent since 1966 That is versus
2.5 percent in the decade 1955 to 1965, using the same
comparison.
So, there should be no surprise that prices have
exploded the way they have. Of course, we have to
recognize that a major part of money growth was to
accommodate our Federal deficits. We have been unwilling,
also, on another front to curtail or eliminate Government
regulations and other policies that encroach upon the
efficiency and growth of our free market.
Just a prime example is the regulation of natural
gas at the wellhead, which causes many other shortages
as well, not only natural gas, but fertilizer.
MORE
- 4 -
Of course, we had some things that one might
say were outside of our control in the unprecedented
series of crop setbacks in 1972 and 1974. Bad weather
is one of the few things you can't blame your Government
for. (Laughter)
The explosion and quadrupling of oil prices in
a year -- you have all heard me talk about that ad nauseum.
What many people sometimes don't think about is that oil
isn't just a commodity that you put in your automobile.
Oil is a commodity that really makes most of the products
we use today, whether from your toothbrush to your plastic
cup to the steering wheel of the car to petrochemicals
for fertilizers.
The impact goes beyond this one sector. The
simultaneous boom that was going on in all of the
industrialized nations in two years caused extraordinary
international demand.
Finally, the wage and price controls and the
distortions and scarcities that create it proved once again
that controls don't work and they only make inflation and
unemployment ultimately worse.
All of the experiences of all of the nations --
we can go back, as someone likes to use, the time of
Diocletian when they were first started, but use the
experience of all the industrialized nations in the 20th
century with their income policies.
They have been a failure and I suggest that
those people who suggest income policy or wage and price
controls today are guilty not only of very bad memories
but no knowledge of history and very little ability at
economic analysis.
MORE
. 5 -
So, all of these seven factors that I just talked
about have combined to give us the worst peacetime inflation
that we have ever had in our history, and that inflation has
been a primary cause of the recession that we are having now.
And all we have to do is look at two of the weakest sectors
in our economy -- housing and consumer spending -- it was
inflation that caused the tremendous fiscal instability
that caused the severest slump in housing in our history.
The same with consumer confidence, and frightening the American
people is double-digit inflation and caused the largest drop
in consumer spending.
Myth two, we don't know how to get out of here.
Well, I think myth two is very difficult, very difficult to
be believable because it requires patience. And I think, by
nature -- and I include myself in this comment -- we are very
impatient people, and we all demand instant answers to problems
that face us. And we have been a country that has supplied
the people with such a super abundance of everything that it
is understandable that we all feel that way, but for a problem
as severe as this one, that has built up over such a long
period of time, we must realize that there are no quick
solutions, no magic wands, no instant programs that can be put
into place.
We have tried these instant programs before, wage and
price controls being the last item, a spectacular one, you
might say. So, therefore, we felt we had to design a program
that dealt with all aspects, the imbalances in our economics,
the recession, the double-digit inflation, deal with the
fundamentals -- we understand this is going to take time --
the special factors that I spoke of that ordinarily when these
special factors work through the economy once they receded the
price level would recede to what you and I might consider to
be a reasonable level.
Well, this time, it is not going to because of what
I would call irresponsible Government policy for a prolonged
period of time, and we are going to be left still with an
unacceptable rate of inflation after these special factors
have worked their way through the economy. So, facing these
problems and recognizing that we are just dealing with inflation
or just dealing with recession, our policies could be pretty
straight forward.
We could put demand restraint programs in for the
former, and we would begin to see results pretty quickly, or
we could have an expansionary policy that deals with recession
and the results would begin to show in a reasonable period of
time. But we are dealing with the delicate problem of both
recognizing always that there are going to be those that bear
a disproportionate burden in our battle against inflation, if
indeed, we are once again serious or for once serious about curing
this problem, once and for all, and not just going to continue
to deal with the symptoms of the problems as we have so many
times in the past.
MORE
- 6 -
So, what do we do about it? We try to moderate fiscal
policy. We are not seeking to be Draconian in cutting the
budget. We are trying to slow the momentous growth in Federal
expenditures. Even at the $302 billion figure this year -- that
is versus $268 billion last year -- it is a 13 percent increase
in Federal spending.
But it is critical that we hold the line at 302, if
we want to keep the future budget and the cumulative effect of
all these future budgets in line. People will look at the
$4.7 billion that we sent up to the Hill for deferrals and
recessions. You know that isn't just 4.7 billion. That money
for those programs we are asking, recessions and deferral,
translates itself into a little over $7 billion next year,
and on past experience, you can pick your own numbers as to
what it would be year after year. But the minimum would be
seven, so that is just a continuation of a cumulative effect
of the way Government spends your money.
We recognize, too, that massive Federal spending now
would not really cure the sluggishness in our economy. It is
a blunt instrument that usually, or almost always, takes
effect after the rebound has started, and really, that only
just contributes to more inflation. And that is what we have
experienced with the stop and go policies of the last 10 years,
policies that are designed to cure the problem and yet, for
political and other reasons, they give up halfway through.
Let us hope that we do not lose this opportunity
because we are being given a magnificent opportunity, or
extraordinary opportunity at this time.
Because of the excessive spending that we have had,
the Fed has had to bear the brunt in our battle against inflation.
With more moderation on the fiscal side, monetary policy could
be more accommodating ordinarily. The goal is to have a
moderate monetary policy supporting economic growth, but not
creating the excessive stimulus.
We have to have the proper balance, in other words,
between monetary and fiscal policy. On the "sacred cows,"
we have proposed legislation to eliminate some of these Govern-
ment restricted practices, and deregulation of natural gas is
one of them.
We have asked the Congress to set up a regulatory
reform commission to study and propose the much needed reforms
in this area. Food, that is a very simple policy and has made
a dramatic shift during the last three years. It is called
all out production for the first time. Before, we had Govern-
ment setasides from subsidies.
All of these impediments to production have been
removed, and given half a break in the weather, which we have
not had half a break, we will once again be able to produce
all we need at reasonable prices.
MORE
- 7 -
Energy policy: you deal with the energy policy on
two sides, obviously, supply and demand. And there are many
today who say we have no energy policy. Well, there will be
a big booklet turned out in January on the energy policy,
and I will suggest that energy policy is no more of a mystery
than economic policy is.
We are a country, as you have heard me say a thousand
times, that has been blessed with a super abundance of natural
resources. We have placed a great many impediments in the
market place to the development of our energy resources in
this country. They must be removed, not to mention the
environmental constraints of the compatibility between the
environment and our energy, a market that provides the freedom
to invest, proper financial incentive.
We have at least 20 pieces of critical legislation
that have been on the Hill for between one and three years.
There is no way we can increase production in this country
of our energy resources without the necessary legislation
that goes from the deregulation of natural gas to surface
mining to deep water ports and all of the other items that
are up there dealing with the whole broad spectrum of energy.
On the conservation front, you know, when we designed
the so-called volunteerism that comes under so great attack
today, we need mandatory programs. When Government is designing
mandatory actions to be legislated to be put upon our economy,
one must measure the economic impact, and when we are in an
economy that is sliding, a mandatory program immediately of
energy conservation mandated and run by your Federal bureaucracy
is going to have an economic impact and this must be weighed.
So, we said, "All right, we have a target of a million
barrels a day by the end of 1975. How can we best accomplish
that target?"
Well, we have the amendments to the Clean Air Act, the
Federal mandates with the ability to switch public utilities
from oil to coal. Now both items would give us a significant
savings in energy. We never had mandatory conservation
measures at the height of the embargo last year. When the
embargo ended we were still testifying on that piece of
legislation, and that started well before Christmas. We
achieved a great deal during the embargo with voluntary measures.
We wanted to see exactly how much could be saved through all
of these methods before it became necessary to put in
mandatory controls of some sort and I use as an example,
when I am asked, the mandatory allocation program which
mechanism is in place already and it could be started tomorrow
the same way it was last February where you get 90 percent of
the base period and you get 85 percent of another base period,
but this again has an economic impact and must be weighted
very carefully.
The trade bill, as the President said last night,
is another essential part of our effort.
MORE
- 8 -
And finally, given the special attention to
casualties of our present stagflation, those who bear
a disproportionate burden, we have programs that
include expanded unemployment, tax relief for low income
Americans, housing aid, increased tax incentives for industry
which is so badly needed and which ultimately will provide
more jobs in this country. In short, we know what the
problems are and we believe we are on the right track to
solving them.
It is going to require our patience and the wisdom
and the courage to stick it out to the end and that is what
our President is determined to do.
Now at this point, just briefly, I would like to turn
it over to Alan Greenspan who is going to give a brief
comment on where we are and where he believes we are going
and then I will come and field your answers.
Alan.
MORE
- 9 -
MR. GREENSPAN: Thank you, Bill.
I told the Secretary that my stomach is
currently in a recession, and I hope I can stand up here.
(Laughter)
It looks now as though the unemployment rate,
which will be released on Friday, is likely to show an
increase. We do not have the data, I might add, and will
not get it until Thursday afternoon. As you probably
know, I do get access to advance release information to
alert the President, but the usual procedures that have
gone on in the past have been changed.
I do not, at this point, have any indication of
what that official number will be. However, we do
have weekly data which are published on those unemployed
under the various State insured unemployment programs,
and there is no question that between mid-October and mid-
November that there has been a very significant increase.
This largely reflects, I might add, a very
high rate of layoffs, and I think it is important to
recognize the distinction between the unemployment
rate which is obviously quite important, but also I
think it is important for us to focus as well on something
which is not given terribly much analysis, and that is
the implications of a layoff rate in our economy, because
that has a much more potent impact on the 94 percent of our
population, or labor force, which is employed, and their
concerns are obviously very much impacted by that.
So, we are looking at the situation, as I see
it now, in which we are unquestionably dipping. Production
levels are moving downward. This is obviously dramatically
underscored in themotor industry, where some cutbacks
have been announced. They have been quite significant.
I think what we are seeing at the moment is an
economy which is definitely moving downward and is likely
to continue so into the early months of 1975. Nonetheless,
we are also beginning to get an acceleration of the other
side of our problem; namely, some evidence, although at
this moment quite fragmentary, of weakening in the virulence
of the inflation rate.
What we see is that there are a number of
softenings of industial prices, not even incidentally
in those data which are published by the Burea of Labor
Statistics and Wholesale Price Index; that is, remember
that a lot of the types of price data we see are so-called
price list quotations and do not, in fact, fully capture
the extent to which you get price discounts and the extent
to which the actual price level is being affected.
MORE
- 10 -
I don't know what the Wholesale Price Index is
going to be. I don't have the data yet. Obviously,
we do know that the big rise that was attributed to
the marked increase in the last release in food prices
is not going to be repeated in the next monthly release
because agricultural prices showing very little change and
a slight decline in the most recent month.
But nonetheless, I think all of the evidence
which we have combined from various different
sources is encouraging on the side, and I think, as I
have mentioned previously, we do look for a gradual
easing in the rate of inflation into the 6 to 7 percent
annual rate area by the spring.
Now, it still appears that the bottoming patterns,
the economic processes which we have been looking at
for months, are still pretty much on schedule; that is, they
speeded up a bit faster than I would have expected.
But the process itself is still fairly largely
in place, and this suggests that we can look for some
upturn in motor vehicle production after the first quarter
of 1975, remembering that a good part of the weakness we
are seeing now is a major retrenchment of over-extended
investors is in this industry and a mere turning around of
the inventory pattern as well as just even some modest
improvement in sales, which we do expect, does give you
significant increases in motor vehicle assemblies, which
is what the production figure and employment are related
to.
We also see the very early signs that home-
building is in the process of bottoming out. It is premature
to say it has bottomed out, but the advance indicators and
the financial flows and the thrift institutions and a
number of other secondary things suggest that we are coming
into a shallow decline, and that should show some process.
Even though motor vehicles and home-building
are not in total very substantial elements in the
economy as a whole, they do, nonetheless, account for a
very substantial part of the rate of change in economic
activity, and they, of course, have, as the Secretary
has indicated, contributed in large part to the weakness
we are seeing now but they also, merely unwinding them-
selves in the other direction, are major factors to lend
support to economic activity during the second half of
1975.
So, essentially the general pattern of our
outlook has not changed. What has changed is the fact
that the most short-term indicators are moving down
faster than we had anticipated, but the general pattern
does look, as far as we can see it, pretty much as we
have envisaged it for the last several months.
MORE
- 11 -
SECRETARY SIMON: Thank you, Alan. I will be
delighted to respond to any questions you may have.
Q Mr. Secretary, your prepared paper here
says that you still consider inflation the prime problem,
and the other problem of recession as a secondary
problem. Do you stand by that orally now?
SECRETARY SIMON: When we say the prime problem
and secondary problem, this argument of semantics of
inflation-recession that has been going on for the last
month really misses the whole problem. Recession and
inflation are parts of the same problem.
There are those who will say they are equal parts.
Some say we must now shift from inflation and focus
entirely on recession, which we happen to think would be
a mistake because by definition that means very expansionary
policies, which would only leave us a year or a year and a
half from now in our judgment with even higher inflation
and higher unemployment.
This society, which I think I also say somewhere
in the paper, can't live with double-digit inflation that
we are experiencing now. We have seen this go, with the
crises at shorter intervals in the last ten years and
starting from higher levels, each time judged by the
inflation rate or interest rates, and so we must attack
this problem first and formost, but understand that
problem doesn't just stand alone.
As I said in my opening comments, we not
only have inflation, we have recession and that is why
our policies must be delicately balanced to handle both
of those problems, there again taking care of those
that bear the disproportionate burden of these policies.
Q
Mr. Secretary, would you anticipate there
would be any change in those policies to give greater
emphasis to the danger of recession during the next
couple of months?
SECRETARY SIMON: Let me tell you how we go
about economic policy in this Government. We have an
Executive Committee of the Economic Policy Board, which
meets each morning after the senior staff meeting in the
White House, for anywhere between half an hour and an
hour.
That is done every single day, and there are
a series of meetings in the day where all of us or part of
us will be together discussing special actions that
can be taken, and we meet at least once a week with the
President.
MORE
- 12 -
Each morning we review the economy, the
changes, the new figures, whether it is the CPI, the
WPI, the price weaknesses that Alan Greenspan spoke
of a minute ago, the unemployment index, the changes
that are occurring that mean we have to make, whether they
are subtle shifts or otherwise shifts in emphasis in our
policy.
But no one out there would expect us to be
changing economic policy every day. The major thrust of
our policy remains unchanged. We are fighting this
hydra-headed monster called stagflation, coupled with
the imbalances that I spoke of before, and we believe we
have the policies that are designed to cure it.
Now, as the economy is in a sliding posture, as
Alan said, we have to make sure that this sliding posture
in exercising our flexibility doesn't exceed what our
actual forecasts were and are and stay in the zone of
where we believe they would go.
So, that is why we are constantly reviewing
this. And whether or not there will be changes of
emphasis and balance, I think at this point it is a little
bit too early to tell, but we won't hesitate to make what-
ever changes are required to make sure that we don't go
into a prolonged slump versus the one that we forecasted
that we will come out of sometime in the summer of next
year, hopefully, with the back of inflation having
been broken.
Q
Mr. Secretary, the President in a Newsweek
interview coming out this week referred to a 6.5 percent
unemployment rate as what he could call a very serious
deterioration, if I remember the quotation correctly.
At least from the tenor of his remarks in the interview,
he suggested that might lead to fairly major changes in
terms of the game plan that you people are working on.
SECRETARY SIMON: I must admit I didn't get that
major change in emphasis from my conversations with him.
Our forecasts show that unemployment is going to increase
and increase right through the spring of next year, yes.
That is why recognizing this we designed this expanded
unemployment program as well as the public service program.
Q
Are there any options, at least theoretical
in your mind, such as tax relief, that sort of thing?
SECRETARY SIMON: Let me assure you that in
designing the options and looking at whatever our worst
case might be or the best case or something in between,
and looking at the zones the economy might pass through over
the months ahead, that we look at every single option and
certainly a tax cut is an option.
MORE
- 13 -
Q
Mr. Secretary, do you assume that the auto
industry won't reach a balance of new sales until the
1975 models are in the showroom, marketed next September?
Is that the inference?
SECRETARY SIMON: I believe Alan was saying
that we would begin to see the improvement after the
inventory readjustment sometime toward the end of
the first quarter -- is that correct -- of next year?
MR. GREENSPAN: Those are dealer inventory
readjustments. I think what we are seeing now is a
level of sales which is probably unsustainably low in
the sense that a good part of it reflects the reaction to
the advance purchases of 1974 models in July and August
of this year in advance, attempting to beat the price
increase on the 1975 models,
So, what you would expect in the very early
sales patterns of the 1975 models you would be losing
some of those sales which were bought in advance, and
as a consequence, we view the current sales level, which
is quite low, as below where it is likely to be in the
early months of 1975 and for the spring, certainly.
Q
Should the auto manufacturers cut their
prices? Is that the answer to the problem?
MR. GREENSPAN: I think that the problem that
is obviously a major issue on auto sales is the question of
consumer uncertainty, and that is sort of a consequence
of the economic malaise which the Secretary has been
talking about. I think the best way to solve the auto
industry's problem, as it is to solve most of the problems
which we are encountering at the moment, is to cure that
economic malaise.
SECRETARY SIMON: And the malaise is inflation,
and that is what has frightened and confused the American
people, not to talk about the confidence problem they have.
Q
You think people are holding back waiting
for the prices to go down?
SECRETARY SIMON: I always think that is a
portion of it, except they did, as Alan indicated, purchase
the 1974 models as a resistance to the higher priced
1975 models. It is obvious that at a price we are
achieving some equilibrium in the market and unless the
economy improves and they are able to see a change in
consumer confidence in this country, and they are willing
to purchase these cars, the only way people can sell any
merchandise is to cut the price.
MORE
- 14 -
Q
Can I ask Mr. Greenspan what his current
forecast is for peak unemployment, and when he thinks it
will be reached?
MR. GREENSPAN: Phil, it looks now as though the
peak is something over 7 percent. It is very difficult
to forecast unemployment rate largely because it is a
highly volatile statistic which is even difficult to
forecast within a half a percentage point range even if
you know everything else that is going on in the economy.
So far as the peak is concerned, I would suspect
that we are looking at sometime around midyear. However,
the peak in the layoff rate -- which as I indicated in
my opening remarks is also a very critical factor --
may be very early in the year.
Q
Just to follow up on that, practically
every other economist has the peak someplace in the
third quarter or fourth quarter.
MR. GREENSPAN: I would consider the third
quarter midyear. I would, too, in a sense that if you have
it at midyear, it is very likely that the third quarter
would certainly be above the second quarter on average.
Q
Mr. Secretary, in his briefing at the
White House, Director of the Office of Management and
Budget Roy Ash indicated that the deficit for this fiscal
year could be $9.2 billion if everything goes right. Do
you have any reason to think that it is not going to
go right, that Congress will not act on all of the decisions
that have been given to them? What is your estimate of the
deficit?
SECRETARY SIMON: I think we have two problems.
Roy is absolutely correct in that number, and that is
making the major assumption that (a) no new spending programs
are put into place that have a 1975 budget impact and,
(b) that the Congress will act on the deferrals and recissions
and we are making that assumption, yes, until otherwise
occurs.
But let's make one differentiation, which I
think is important when one talks about a deficit that
is exacerbated due to a revenue decline, due to the
recessionary tendencies in our country, which is what we
are experiencing now.
The revenue estimates are declining -in the
Treasury Department due to the slack in our business, and
there is a great difference between budget deficits that
are induced through revenue declines in a recessionary
climate and budget deficits that we have due to just plain
Federal spending and new programs.
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Q
Mr. Secretary, in his Newsweek interview
the President spoke about a 6.5 percent unemployment rate
being indicative of a very serious deterioration. You
spoke of the possibility of the economy going through, as
you put it, various zones which might require consideration
of a tax cut.
What zone do you have in mind for that to occur?
SECRETARY SIMON: When we were looking at all of
these options, which we have been and are looking at,
looking ahead in the months, we did not put any
particular zone or any particular unemployment rate
because it just isn't the unemployment rate alone.
There are many factors that we have to weigh
before we shift emphasis in our policy. Certainly 6.5
percent is serious. There are many people who think 6
percent is indeed serious, and that is why again that the
President proposed the expanded unemployment program.
Q
Are you willing to support an expansion of
the size of that unemployment program?
SECRETARY SIMON: I think as we continue to
look at the economy, and the automobile sector, which again
reflects consumer confidence, and trying to gauge what
consumer confidence is in the months ahead is extremely
difficult. That is what has caused in my judgment that
major unemployment.
Certainly, we will consider anything, because
as the President has said, he is going to make sure that
we take care of the people who bear the disproportionate
burden in our battle against inflation, and our President
means that.
This strong feeling is shared by his economic
advisers, because if we have a chance, this opportunity
that I spoke of before, to once and for all lick the
problem of inflation, our policies must be compassionate
and humane and recognize that we have to take care of these
things in our economy, because that is the only thing that
is going to buy us the necessary time in this democracy
to have our policies take hold.
Q
Mr. Secretary, I wonder if you could elaborate
a bit on your comment that a tax cut is an option? Is it
an option that already has been discussed by the Economic
Policy Board or an option that will be discussed soon or
an option on some distant horizon?
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SECRETARY SIMON: I don't know about the
third, an option on a distant horizon, but I can say
it is an option that has not been discussed by the
Economic Policy Board. The Treasury Department -- and
this used to be a traditional answer in the Treasury
Department when asked, "Are you working on X" -- I
can tell you the Treasury Department is always working
on tax policies and tax adjustments and incentives.
We are, as I said, constantly studying these
things so we don't have to draw these plans up. If
indeed they are required, we have them ready
to present for discussion, but they haven't been
discussed yet.
Q
To follow up, the President in that Newsweek
interview indicated that he expected in a short period,
I think two weeks or so, to be receiving options from
the Economic Policy Board. Do you expect that tax policy
would be among them?
SECRETARY SIMON: I would say that that would be
on the option paper, just as when people ask me the
question about the gasoline tax, when we look at the revenue
raising measure, I must admit that is always part of the
option paper as well. Whether or not that particular
item is selected by the President we can't speculate, but
of course when we put something forward we don't just put
our opinion of what is best to the President. We must
present every option that we understand along with the pros
and cons on each issue.
Q
Mr. Secretary, under what conditions
would you consider wage and price controls?
SECRETARY SIMON: I would consider wage and
price controls under no conditions. As I said a little
while ago, we need not go back. Just study the history
and every country that has tried an incomes policy in
this century, they don't work.
It creates distortions, inequities, scarcity,
ultimately more inflation and higher unemployment. People
always point to :World War II as "Gee, it worked then."
We had some patriotism then, and wage and price controls
for a time disguises or masks the inflationary pressures
in our economy, and few people go on to say from
August 1945 to November 1946 wholesale prices went up
about 33 percent.
That is scrt of the same thing we are experiencing
now, and they don't remember about the black market in
gasoline, and when you went out to buy a bottle of scotch
you had to buy three bottles of rum with it.
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That is what happens when you start to tamper
with this great economy of ours. You are goingto find
those that are dishonest. The majority of the millions
of people will abide by it, but we are much better to let
this economic system that has provided the American people
with the greatest standard of living in the history of
the world, and we should be removing impediments instead
of erecting them as your Government is so good at doing.
Q
There has been recent speculation that you
would like to get out of the Government quite soon.
Would you, and will you, or are you a permanent fixture
with the Ford Administration?
SECRETARY SIMON: I don't know anybody in
Government who is a permanent fixture. I have made the
statement I will stay as long as President Ford wants me
to stay.
Q
You say you are considering a series of
options and a tax cut will be among them and will be
presented to the President. In your judgment, is
policy likely to be turned more stimulative in the next
two or three months?
SECRETARY SIMON: When you say, "stimulative,"
that is like the discussion we had in the first pre-
summit conference with the economists when we were
discussing monetary policy. There is a big difference
in monetary policy among many people.
While we recognize that we do have this
recessionary problem and we can't be contractionary, we
can't be excessively stimulating either or we are going
to be back in the same soup and the same mess that we are
in right now.
So, that is the degree. We don't believe that
our fiscal policy, as one looks at it, a 13 percent increase
in expenditures from last year to this year, $34 billion
is fiscal restraint. What we are trying to do, as I said,
is cut down on the explosion in Federal spending and your
fiscal 1976 budget is going to be your key to watch and
where we go on the expenditure side from this year going
into next year.
Q
Now that you are starting to talk about a
possible tax cut --
SECRETARY SIMON: I talk about it in responses
to a question. Do we look at options? You could ask me
about that in the gasoline tax or anything else. Yes,
there are just so many things that one can do.
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Q
In any case, does this mean that you are
starting to give up on the notion of a 5 percent surtax
being passed by the Congress or beginning to feel that its
chances for passage are less --
SECRETARY SIMON: When the President recommended
the surtax to the Congress, contrary to some peoples' opinions
and, indeed, what was printed, that it was a demand restraint
measure, that was never mentioned.
The purpose of the 5 percent surtax was to pay for
the programs, to begin to attempt to raise revenue as we are
creating expenditures through the investment tax credit and
the expanded unemployment programs. It is about time that we
explained to the American people that they are going to have
to pay for these programs through higher taxes if we wish
to have this spending or pay for it through the cruelest tax
of all, inflation. That was the reason.
Anybody who says it is a demand restraint program,
when you look at the progressivity of this surtax -- which
we did our best to explain, but I guess we failed. When we
start a surtax, a tax on a tax, at $15,000 a year, for an
average family of four at $20,000 pays $16 or maybe it was
$42, if I remember correctly, it is highly progressive.
Q
How much longer do you think the country can
sustain or live with the coal strike?
SECRETARY SIMON: I guess we will know that a little
bit later today. I am hopeful that the miners will vote to
ratify the pact.
Q
There is some question about that. What if
they do not? How soon are we in an emergency?
SECRETARY SIMON: I would say, if they don't, we
most certainly have to reassess the economic situation.
Q
Mr. Secretary, would you reconcile some things
for me?
We have had 15 percent price increases for two years
running in food prices. Lower income families spend a
relatively larger proportion of their income on food than
do people with higher incomes. You have suggested that you
want to be compassionate and help those people hurt by
inflation and recession, and yet, the President this week
has proposed increasing the cost of Food Stamps to low income
families by more than $300 million in the next half year.
How do you reconcile those items?
SECRETARY SIMON: We have many built-in stabilizers
in our economy today. When one looks at the broad spectrum of
income maintenance programs, Food Stamps is only one of them,
and that has ballooned to $4 billion in this budget and will
get up to somewhere close to $6 billion.
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You know, when you start talking about cutting the
budget and analyze where the explosion has been over the last
four years, the major portion of your budget, I think 65
percent has been in what we call transfer payments of which
that is only one portion of it. We have to begin to exercise
some moderation in this area.
We talk about the low income families. The worst
thing of all for low income familes is a double-digit inflation
rate, the regressivity of that by itself. There is no way to
have the cake and eat it too.
If we intend to truly solve the problem of inflation,
which in the final analysis will benefit the low income people
better than the high income people, then we must do this and
again take care wherever we can to smooth out this dispro-
portionate burden. It is not going to be possible, John, in
every single instance. But it is more unfair, I suggest, to
allow inflation to continue at these levels and just do
nothing about it.
Q
Are you suggesting, sir, that the benefit to
the poor in terms of a reduced rate of inflation due to a
300-plus million dollar cut in spending for Food Stamps or an
increase in their payment for them, would be of greater
benefit to them than receiving that payment or the absence --
SECRETARY SIMON: What you are suggesting -- and I
don't have the numbers here -- you are suggesting that that
entire $320 million that was cut from that particular program
went to the poor. As I say, I don't have that here, but
what I would --
Q
Raising the price of Food Stamps to the poor --
it obviously comes from --
SECRETARY SIMON: Oh, you are suggesting that only
the poor get Food Stamps. I think if you look at a list of
people eligible for Food Stamps, you will find many people from
college students on vacation to many others that benefit from
this program.
I will get the specifics for you on that, John,
because I am interested in that answer as well.
Q
I would like to ask Mr. Greenspan a question.
Maybe you could clear something up for me. You say the lay-
offs will peak early in the year, unemployment will peak
sometime after midyear. Does that mean we will have,
obviously then, fewer layoffs figured into the unemployment
rate?
The unemployment rate is going to get considerably
worse than if all the people laid off are back at work before
that high point is reached.
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MR. GREENSPAN: I think the best way to explain it is
to recognize that the layoff rate itself, the number of people
laid off, is tied closely to the rate of change in the
unemployment rate. So leaving aside for a moment the other
aspects of unemployed, other than those who lose jobs,
arithmetically the .layoff rate tends to relate exactly to the
rate of change in unemployment itself.
As a consequence, the layoff rate tends to be at
its maximum when the unemployment rate is in the process
of rising most quickly. So that if we get an unemployment
rate, for example, which rises and then continues to rise
but at a slower rate, the layoff rate will peak and come
down and that is essentially what I had in mind.
Q Mr. Secretary, you had spoken about the
lack of consumer confidence and the need to restore that.
What in the figures or facts that have been given at this
briefing this morning might serve to inspire consumer
confidence?
SECRETARY SIMON: Well, we talk about consumer
confidence. Let's talk for a minute about the American
people's confidence and maybe my analysis of what has happened.
By the Lou Harris poll, confidence is at the lowest
level as far as the American people for their Government,
for all of the institutions that you and I were brought
up to respect, whether it is church, school, leaders, military,
et cetera.
This decline in confidence has been coming over
the last decade. We can trace it through Vietnam, through
the student riots and the many problems that we have
had leading up through the Watergate, which certainly was
a major contributor in this.
The Government is going to have to work very hard
and probably for a long time to restore the confidence in
this particular institution. What we can do, our share, is
to continue to be as open and honest as we can, to tell the
exact facts and to ask your assistance in presenting these
facts to the American people that we do know what we are
doing.
We are not always right. I don't know anybody
who is. But we know what got us into this mess, as I said,
a little while ago, and we know how to get out of it. We
know it is going to take time to get out of it, because there
is no instant miracle to be put in place where everybody
says we have beat inflation. It is going to be business
as usual.
When you take a combination of all the factors,
the economic factors that have gone wrong, some because
of your Government's policies and some because of the
outside factors, and combine it with the low level of
confidence, the destruction of confidence on the part of
the American people, you have quite a mix.
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We are going to have to and we intend to work
terribly hard to turn this around. I am not optimistic
we will be able to do that quickly.
Q
Isn't it almost an ironclad fact that the
unemployment rate, when it is announced for December,
with the announcement of course coming in early January,
will be above 6.5 percent?
SECRETARY SIMON: No, it is not an ironclad
fact, Rich, that the unemployment rate will be over 6-1/2
percent. We talked about that this morning when Alan was
presenting the new facts and figures that are coming out in
the future.
Alan, why don't you step up and talk about the
trickiness of the unemployment number and the flukes that
occur, such as the 5.4 figure some months ago.
MR. GREENSPAN: Rich, one of the problems that we
have with the monthly unemployment statistics is that
it is, as you know, based on a sample of households and
it is a very complex statistic with fairly substantial
statistical variability and the seasonable adjustments factors
themselves of ten give us some problems.
As a consequence, you find that forecasting the
unemployment rate even when, as I indicated before, you know
what is going on in the rest of the economy, is a very
precarious occupation.
You may recall that most forecasters, early this
year, were baffled by why the unemployment rate didn't
rise faster than it did. You may also recall there was one
month in which, as I recall it, insured unemployment, that
the actual number of registered unemployed at the State
Insurance Unemployment Offices showed no change but
the published monthly unemployment rate went up .4.
I think that was in September, if I am correct.
And that suggests some degree of humility in trying to an-
ticipate this number. So, if you want to say it is an
ironclad fact, I would agree with the Secretary,
granted what we know about this number, it can't be.
Q
Mr. Secretary, I am wondering why you consider
this period of stagflation, recession-inflation, to be,
as you put it, a magnificant opportunity? Why should the
American people ragard it as a magnificant opportunity rather
than some other phrasing?
SECRETARY SIMON: I am talking about the magnificent
opportunity, when Alan spoke and a lot of things I said in
my remarks, talked about the price pressures that we see
receding now in our economy. And that in the past, in three
experiences in the past ten years where we have exercised a
degree of fiscal and monetary restraint we turned our policy
toward more stimulous and it was done too soon on each
occasion, as has been done in this democracy, and each
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time it left us with a higher rate of inflation, actual
and base, higher levels of interest rates as a result of
this and even higher unemployment.
Well, if we can see in the months ahead, that
we are going to be able to crack this rate of inflation
and begin to bring it down and not only crack the actual
rate of inflation, but begin to work on the ingrained
inflationary expectations that have been built into the
American people through years of our excesses, then we will
have won the battle, and that is why it takes a long time.
We are going through the most difficult period
right now where we are hearing the siren songs from the other
two camps, and those camps are very close together. One
calls for wage and price controls and the other calls for
more stimulus coupled with wage and price controls. And
we consider either to be, without a doubt, the worst thing we
could possibly do to once and for all in your Government begin
to attack the cause of the problem rather than the symptoms
or the results.
Q
Mr. Greenspan, you suggested the other night that
it was possible that early 1975 might be an appropriate time
for a tax cut. How likely do you think it will be that these
risk premiums will intersect at that stage?
MR. GREENSPAN: I think you are not quite quoting
me exactly. I said if it should turn out that fiscal
stimulus were a desirable tool -- I underline the word "if" --
then I would say, one, we would rule out using the Federal
expenditure side, largely because for the reasons that it is
very difficult to suppress the long-term growth, and it
is essential that we do. So that if there is any need or
desire or reason to use fiscal policy, we should look
only at the revenue side.
Q
How likely do you think it will turn out to be
desirable?
MR. GREENSPAN: I would say, at this moment we see
because of the decline in the economy, because of the shift
from FIFO to LIFO of the number of corporations, a decline
in revenues and we are getting the so-called automatic
stablizers functioning, so the presumption that somehow fiscal
policy is tight or restrictive, I think, is belied by the
numbers and anyone's view of what tax policies should be
at any point in the future should be looking, one, at what
actually are the tactics at the time in the revenue structures;
secondly, what are the financial implications at that point
of financing additional budget deficits?
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So, I would suugest that the decisions that have
to be made, or should be made, at any particular time
are rarely, if ever, capable of being made in advance,
and the facts shouldn't be, because the complexity of the
problems that one confronts at any point in time always
are far greater than one can ever anticipate and I think
what you do is create a large structure of alternate types
of programs, contingencies, most of which you will never
even get close to using. But I think one should have
them. As I indicated the other night, what I would emphasize,
is to not use fiscal policy the way, sort of, it has
classically been used. I think that would be a mistake.
Q
You have spoken about the inflation rate being
6 or 7 percent by next spring. The Secretary has said we
know how to get out of this economic problem we are in. When
will the recessionary features change? When can an upturn be
expected?
MR. GREENSPAN: Ervin, as I indicated earlier,
it looks now still that the pattern is for the bottoming
sometime in the early spring or late spring. It is very
difficult to judge, but the forces of momentum still
appear to give us a pattern of an upturn working its way
through the summer months, through the second half of
1975 and into 1976.
Q Mr. Greenspan, your colleague, Arthur Okun,
said the other day that he expected unemployment to reach
a peak of about 8 percent next fall. How unlikely or likely
do you think that is?
MR. GREENSPAN: I wouldn't know how to put a
probability on it, largely because, as I indicated before,
it is such an uncertain statistic, I think I would be
giving you a misleading answer if I really put a specific
number on it because I really couldn't.
Q
You did put a specific number on it. You said
it would be more than 7 percent.
MR. GREENSPAN: That is not the same statement as
what is the probability.
THE PRESS: Thank you, gentlemen.
END
(AT 11:34 A.M. EST)