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Business Council, Hot Springs, VA, October 22, 1966
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Business Council, Hot Springs, VA, October 22, 1966
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Gerald R. Ford Congressional Papers
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Vietnam War, 1961-1975
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The original documents are located in Box D21, folder "Business Council, Hot Springs, VA,
October 22, 1966" of the Ford Congressional Papers: Press Secretary and Speech File at
the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. The Council donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box D21 of The Ford Congressional Papers: Press Secretary and Speech File at the Gerald R. Ford Presidential Library
BUSINESS COUNCIL - HOT SPRINGS
That can be
I AM EXTREMELY PLEASED TO BE HERE. THE INVITATION to
To catablish my non partisan creditionals, let me tilla story told when why my
TO APPEAR BEFORE YOU IS AN HONOR AND A CHALLENGE.
Animals in can it
THE NATURAL TOPIC FOR ANY GUEST SPEAKER HERE IS be
The at
ECONOMICS. IT IS DIFFICULT TO FIND SOMETHING FRESH TO
TOther
SAY ON THAT SUBJECT, BUT I DO HAVE SOMETHING NEW AND
QUITE DIFFERENT. IT IS A THEORY ADVANCED BY A NEWS
REPORTER FRIEND OF MINE.
OVER A LONG PERIOD OF TIME THIS NEWSPAPER CHAP HAS
STUDIED THE LENGTH OF WOMEN'S SKIRTS. THIS WAS A
SCIENTIFIC PROJECT INVOLVING THE MOST COMPLICATED
MYSTERIES OF ECONOMIC CYCLES. SO HE TOOK NOTES ON ALL HIS
OBSERVATIONS. RECENTLY HE CONFIDED TO ME THE RESULTS OF
THE STUDY. HE SAID THAT BY CLOSE AND UNCEASING HEMLINE
WATCHING, HE HAD COME TO AN UNSHAKABLE AND UNSWERVING
GERALD FORD LIBRARY
CONCLUSION.
-2-
a India
THAT CONCLUSION WAS/THAT THE HEMLINE OF WOMEN'S
SKIRTS RISES IN GOOD TIMES -- YOU KNOW, THINGS ARE
LOOKING UP, AS THEY SAY -- AND THE HEMLINE FALLS IN BAD
TIMES.
IN 1927, MY FRIEND REPORTS, GIRLS WHO BLUSH EASILY
WERE AFRAID TO SIT DOWN. MY FRIEND SAYS / THOSE WERE REAL
GOOD TIMES
IS THERE REALLY SOMETHING TO MY FRIEND'S THEORY ?
JUDGING BY WHAT'S HAPPENED IN THE STOCK MARKET LATELY,
I HAVE THE FEELING HIS HEMLINE IDEA DOESN'T REALLY HOLD
serious minded
UP. OR MAYBE GOVERNMENT OFFICIALS HAVE BEEN KEEPING TOO
CLOSE AN EYE ON HEMLINES INSTEAD OF ON THE DOW-JONES
AVERAGES OR OTHER VALID ECONOMIC INDICATORS.
WHATEVER FIGURES/FEDERAL OFFICIALS HAVE BEEN STUDYING
IN RECENT MONTHS, THE TREMORS WHICH HAVE SHAKEN THE
GERALD
BRARY
-3-
ECONOMY IN 1966 POINT UP THE FACT THAT THEY GAVE YOU A
LESS THAN ACCURATE READING OF THE INDICATORS AT YOUR
ANNUAL MEETING EXACTLY ONE YEAR AGO.
BECAUSE I PRIZE THIS OPPORTUNITY TO SPEAK TO YOU, I
HAVE THOUGHT LONG AND HARD ABOUT WHAT I WOULD SAY.
FIRST, I THOUGHT OF DISCUSSING AIR AND WATER
POLLUTION. BUT COMING DIRECT FROM CAPITOL HILL AT THIS
POINT, I'M NOT SURE AIR POLLUTION IS A TENABLE TOPIC!
AND / THIS SPOT, FAMED FOR ITS MINERAL WATERS, WAS HARDLY
THE PLACE TO STRESS WATER POLLUTION.
I DALLIED OVER TRUTH IN PACKAGING -- AND THE
POSSIBILITY OF RELATING IT TO THE CREDIBILITY GAP, IN A
NONPARTISAN WAY, OF COURSE. BUT THEN MY FRIENDS ON THE
HOUSE COMMERCE COMMITTEE TOLD ME EVEN TRUTH WAS OFF LIMITS
BECAUSE OF BUSINESS CONCERN OVER "TRUTH IN PACKAGING" AND
-4-
TRUTH IN LENDING." I BELIEVE YOUR DISTINGUISHED
CHAIRMAN, AMONG OTHERS I SEE HERE, EXPERIENCED SOME
DISCOMFORT IN THIS AREA WHEN HE CONTEMPLATED WHAT MIGHT
HAVE HAPPENED IF THE CONGRESS HAD APPROVED WHITE HOUSE
RECOMMENDATIONS ON PACKAGING LEGISLATION.
BECAUSE MY HOME IS THE GREAT STATE OF MICHIGAN, THE
HUB OF THE AUTOMOTIVE INDUSTRY, I CONSIDERED THE POSSIBILITY
OF DISCUSSING AUTO SAFETY LEGISLATION. BUT SINCE SOME
REPRESENTATIVES OF THAT INDUSTRY ARE HERE, FOR BUSINESS
AND A PLEASANT WEEKEND, I DIDN'T WANT TO UPSET THEIR
PLANS BY REMINDING THEM OF THE HORRORS OF THE PROPOSALS
ADVANCED BY THE EXECUTIVE BRANCH OF THE GOVERNMENT IN AUTO
SAFETY SO-CALLED.
GERALD
LIBRARY
I FINALLY TURNED TO A TOPIC CERTAIN TO BE NONPARTISAN
AND INOFFENSIVE -- A REVIEW OF WHAT ADMINISTRATION SPOKESMEN
-5-
at the Homestand
TOLD THE BUSINESS COUNCIL 12 MONTHS AGO HERE AND AN
APPRAISAL OF WHAT HAS ACTUALLY HAPPENED IN THE INTERIM.
WISDOM IS OFTEN DISCOVERED IN HINDSIGHT. SOUND
PERSPECTIVE FOR THE FUTURE OFTEN RESTS ON WISDOM
GARNERED IN ECONOMIC AUTOPSIES. LET'S TAKE A LOOK
BACKWARD SO WE MAY LOOK FORWARD WITH CLEAR VISION.
LAST YEAR ALMOST EVERY ONE OF THE GOVERNMENT SPEAKERS
APPEARING HERE RHAPSODIZED OVER
"THE PREVIOUS FIFTY-SIX
MONTHS OF CONTINUED EXPANSION
NOT ONE OF THEM MENTIONED THAT DURING THAT 56-MONTH
PERIOD THE USE OF CREDIT INCREASED AT A RATE MUCH MORE
RAPID THAN THE INCREASE IN INCOME. AND NOT ONE OF THEM
MENTIONED THAT THE LIQUIDITY OF CORPORATIONS AND COMMERCIAL
BANKS HAD BEEN REDUCED FROM YEAR TO YEAR.
IT IS INTERESTING THAT SUCH BASIC INFORMATION WAS
GERALD FORD LIBRARY
-6-
SLIPPED OVER BY THESE EXPERT OBSERVERS.
ONE CANNOT BUT WONDER WHETHER OUR CURRENT ECONOMIC
PROBLEMS--TIGHT MONEY, HIGH INTEREST RATES AND RISING
CONSUMER PRICES--COULD POSSIBLY BE RELATED TO THESE
IMPORTANT CONSIDERATIONS SO CURIOUSLY UNMENTIONED A YEAR
AGO.
SOME OF THE OTHER STATEMENTS ADMINISTRATION SPOKESMEN
DID MAKE LAST OCTOBER WERE JUST AS CURIOUS.
EXACTLY ONE YEAR AGO ECONOMIC COUNCIL CHAIRMAN
GARDNER ACKLEY WAS QUOTED AS SAYING, "I AM OPTIMISTIC
ABOUT THE CONTINUED STABILITY OF COSTS AND PRICES." HE
ALSO SAID: "GOVERNMENT HAS THE WEAPONS AND THE WILL TO
MAINTAIN EXPANSION WITHIN NON-INFLATIONARY BOUNDS." HE
EVEN HELD OUT HOPE FOR FURTHER TAX CUTS FOR LOW-INCOME
FAMILIES IN THIS YEAR OF 1966.
GERALD LIBRARY
IN ALL FAIRNESS, I MUST SAY THAT MR. ACKLEY
-7-
HEDGED HIS BETS. HE ACKNOWLEDGED THAT OUTLAYS FOR THE
VIETNAM WAR MIGHT OVERHEAT THE ECONOMY. TREASURY SECRETARY
FOWLER SAID SOMEWHAT THE SAME THING A WEEK EARLIER--THAT
IF VIETNAM WAR COSTS RAN TO 10 BILLION OR MORE IN 1966
HE'D BE THINKING ABOUT AN INCOME TAX INCREASE. BUT. OF
COURSE, MR. FOWLER WENT ON TO INDICATE THAT HE WASN'T REALLY
THINKING ABOUT A TAX INCREASE AT ALL.
IN REVIEWING THESE REMARKS, DON'T YOU FIND IT PUZZLING
THAT THE PRESIDENT'S TOP ECONOMIC ADVISOR AND EVEN THE
SECRETARY OF THE TREASURY SEEMED SO MUCH IN THE DARK ABOUT
OUR MILITARY SPENDING IN THE IMMEDIATE FUTURE, AND WHAT
TO DO ABOUT IT ?
WE IN CONGRESS HAD STRONG INDICATIONS AS TO RISING
VIETNAM WAR COSTS, AND WE MADE THEM KNOWN PUBLICLY AND
WITH EMPHASIS FROM TIME TO TIME.
GERALD LIBRARY
I HESITATE TO CONCLUDE THAT NONE OF THE ADMINISTRATION'S
-8-
CIVILIAN LEADERS HAD KNOWLEDGE OF OUR MILITARY PLANNING
AND THE COSTS INVOLVED.
YET/THE ONLY OTHER CONCLUSION ONE CAN COME TO IS THAT
THEY KNEW BUT DIDN'T SAY / AND THAT IS WORSE
IN FEBRUARY, 1965, PRESIDENT JOHNSON CALLED FOR A
STEP-UP IN THE VIETNAM WAR. ESCALATION CONTINUED THROUGH-
OUT THE YEAR. IT SHIFTED INTO PERCEPTIBLY HIGHER GEAR
IN JULY, 1965, AND IS STEADILY CONTINUING.
IN VIEW OF THE OBVIOUS IMPACT OF THAT ESCALATION ON
THE ECONOMY==AND IT IS GOVERNMENT'S JOB TO ASSESS SUCH
EFFECTS--THE PRESIDENT CLEARLY SHOULD HAVE SUBMITTED A more
TIGHTLY RESTRICTED DOMESTIC SPENDING BUDGET TO CONGRESS
LAST JANUARY.
GERALD FORD LIBRARY
NOW--EVEN NOW--ADMINISTRATION OFFICIALS STILL ARE
SAYING THEY DON'T KNOW HOW MUCH THE VIETNAM WAR WILL COST
OR HOW WE WILL PAY FOR IT
-9-
YOU MAY HAVE GATHERED BY NOW THAT I DON'T BELIEVE
ALL WISDOM RESIDES IN THE EXECUTIVE BRANCH OF THE
FEDERAL GOVERNMENT. AND NEITHER DO I AGREE WITH THE
INFERENCE OF SOME THAT ALL ELECTIVE OFFICIALS ARE BLOKES
INCAPABLE OF SOUND JUDGMENT AND TOTALLY DEDICATED ONLY
TO GETTING THEMSELVES RE-ELECTED.
I SUBMIT THAT INFORMATION, EXPERIENCE AND OPINIONS
GATHERED AND DISSEMINATED ON CAPITOL HILL ARE INVALUABLE
TO THE EXECUTIVE BRANCH AND TO THE PEOPLE.
I BELIEVE THERE ARE TIMES WHEN LEGISLATIVE COMMITTEES
AND INDIVIDUAL CONGRESSMEN CAN OFFER BETTER ADVICE TO THE
WHITE HOUSE THAN THAT OF ITS OWN EXPERT ADVISERS.
UNFORTUNATELY, THAT LEGISLATIVE ADVICE IS OFTEN SPURNED.
WE IN THE CONGRESS HAVE BEEN WATCHING WITH GREAT
INTEREST THIS NATION'S EXPERIMENT IN NEW ECONOMICS. WE
-10-
KNOW IT CANNOT WORK PROPERLY IF IT IS USED ONLY WHEN
IT IS POLITICALLY ADVANTAGEOUS AND IS IGNORED WHEN
POLITICAL FALLOUT THREATENS.
ITS MAJOR PREMISE IS / THAT WE MUST BE AGGRESSIVE IN
USING BROAD FISCAL POLICY TOOLS AS WELL AS MONETARY
POLICY TO MAINTAIN A STEADY, NON-INFLATIONARY RATE OF
GROWTH IN THE ECONOMY. ITS MAIN QUARREL WITH THE PAST IS
NOT NECESSARILY THAT WE HAVE DONE THE WRONG THINGS, BUT
THAT WE HAVE NOT DONE ENOUGH OF THE RIGHT THINGS AT THE
RIGHT TIME.
I SUBSCRIBE TO JOHN MAYNARD KEYNES'S THEORY THAT THE
MODERN CAPITALIST ECONOMY DOES NOT AUTOMATICALLY WORK AT
PEAK EFFICIENCY AND THAT ITS EXCESSES OR DEFICIENCIES MAY
FORD
BE ADJUSTED BY WISE AND TIMELY GOVERNMENTAL ACTION.
GERALD
LIBRARY
I WOULD EMPHASIZE THAT KEYNES WAS PRIMARILY CONCERNED
-11-
WITH COUNTERACTING BUSINESS SLUMPS. BUT HE ALSO WARNED
AGAINST INFLATION AND THE DEBASING OF A NATION'S CURRENCY.
THE THREE MAIN TOOLS IN THE KEYNESIAN ECONOMIC CHEST
ARE TAX POLICY, CREDIT POLICY AND SPENDING POLICY. IT IS
INTENDED THEY BE USED TO COUNTERBALANCE UNDESIRABLE
TENDENCIES IN THE PRIVATE SECTOR OF THE ECONOMY.
DR. WALTER HELLER, FORMER CHAIRMAN OF THE PRESIDENT'S
COUNCIL OF ECONOMIC ADVISERS, HAS REPEATEDLY TOLD US THAT
TO BE EFFECTIVE THE NEW ECONOMICS SHOULD WORK BOTH WAYS.
IT SHOULD BE USED TO STIMULATE THE ECONOMY WHEN NECESSARY,
TO RESTRAIN IT WHEN REQUIRED.
DR. HELLER RECENTLY SAID: "ESSENTIALLY, THE JOB IS
TO MAINTAIN STABILITY WITHOUT RESORTING TO OBNOXIOUS
CONTROLS AS WE DID IN WORLD WAR II AND KOREA.
GERALD FORD VIBRARY
WE HAVE IN CONGRESS A GENTLEMAN WHO IS EXTREMELY
KNOWLEDGEABLE IN THE FIELD OF ECONOMICS -- REP. TOM CURTIS
-12-
OF MISSOURI, AN OUTSTANDING MEMBER OF THE HOUSE WAYS AND
MEANS COMMITTEE AND THE JOINT ECONOMIC COMMITTEE.
CURTIS HAS, LIKE HELLER SOUNDED THE WARNING THAT THE
NEW ECONOMICS IS A TWO-WAY STREET.
HE AND HELLER WERE AMONG THOSE WHO EARLY THIS YEAR
RECOGNIZED THE PERIL OF INCREASING INFLATION AND PLEADED
FOR RESTRAINING ACTION BY THE ADMINISTRATION.
THE ADMINISTRATION DISREGARDED PLEAS BY CURTIS, HELLER
AND MANY OTHERS FOR RESTRAINT EARLY IN 1966. THAT IS WHY
WE ARE IN TROUBLE TODAY. OUR TROUBLE IS NOT WITH KEYNESIAN
administration
ECONOMICS BUT WITH JOHNSON ECONOMICS."
alministration
WHAT FAILS US IN THE JOHNSON ECONOMICS? IT IS A
PARALYSIS OF POLICY, A RELUCTANCE TO MAKE TIMELY APPLICATION
OF TAX, CREDIT AND BUDGET POLICY WHEN THAT APPLICATION
BECOMES POLITICALLY PAINFUL.
LIBRARY
IT'S TRUE THAT TIMING OF GOVERNMENT ECONOMIC POLICY
-13-
IS A DIFFICULT QUESTION. IT IS ONE ON WHICH ECONOMISTS
CAN BE EXPECTED TO DISAGREE HONESTLY, REGARDLESS OF THEIR
POLITICAL LOYALTIES.
HAVING SAID THAT, LET ME CALL YOUR ATTENTION TO A
NEW YORK TIMES STORY OF LAST MARCH 13. THE TIMES REPORTED
THAT THREE OUT OF FOUR FORMER CHAIRMEN OF THE PRESIDENT'S
COUNCIL OF ECONOMIC ADVISERS FAVORED EITHER FEDERAL
SPENDING OUTS OR A TAX INCREASE. IT WAS IN MARCH THAT
THEY URGED SUCH ACTION. THOSE HOLDING THESE VIEWS WERE
RAYMOND SAULNIER, ARTHUR BURNS AND DR. HELLER.
LET ME FURTHER CITE A SURVEY OF THE VIEWS OF LEADING
RD
ECONOMISTS MADE BY THE WASHINGTON POST IN EARLY 1966.
LIBRARY
THE POST POLLED THESE ECONOMISTS IN MARCH OF THE 30
WHO REPLIED, 22 FAVORED AN IMMEDIATE TAX INCREASE. THE 22
INCLUDED DR. HELLER, JOHN K. GALBRAITH, PAUL A. SAMUELSON
anny The
JAMES TOBIN OF YALE, WHO IS A FORMER MEMBER OF THE
-14-
COUNCIL OF ECONOMIC ADVISERS, JOSEPH A. PECHMAN, PROF.
E. CARY BROWN OF M.I.T., AND PROF. HARVEY BRAZIER OF THE
UNIVERSITY OF MICHIGAN, A FORMER TREASURY OFFICIAL.
COMMENTING IN SEPARATE REPORTS MARCH 17 ON THE
PRESIDENT'S 1966 ECONOMIC REPORT, BOTH THE REPUBLICAN AND
DEMOCRATIC MEMBERS OF THE JOINT ECONOMIC COMMITTEE SAW THE
NEED FOR A TAX INCREASE.
THREE MEMBERS OF THE FEDERAL RESERVE BOARD--CHAIRMAN
MARTIN, MR. ROBERTSON AND MR. DAANE-CAME OUT FOR A TAX
INCREASE IN OR PRIOR TO MAY OF THIS YEAR. Iso, TOO, DID
PIERRE-PAUL SCHWEITZER, MANAGING DIRECTOR OF THE INTERNA-
TIONAL MONETARY FUND
THE SAME GENERAL VIEWS WERE EXPRESSED BY PRIVATE
ECONOMISTS.
GERALD, FORD LIBRARY
CHARLS WALKER, EXECUTIVE VICE-PRESIDENT OF THE
AMERICAN BANKERS ASSOCIATION, SAID THE "PREPONDERANCE OF
-15-
OPINION" FAVORED A "COMBINED SPENDING CUT AND TAX
INCREASE."
WILLIAM F. BUTLER, VICE-PRESIDENT OF CHASE-MANHATTAN
BANK, SAID HE EXPECTED A TAX INCREASE BECAUSE "AS DISAGREE-
ABLE AS TAX INCREASES ARE, THEY ARE PREFERABLE TO INFLATION."
PLEASE NOTE THE SIMILARITY BETWEEN MR. BUTLER
STATEMENT AND THIS QUOTATION FROM PRESIDENT JOHNSON'S 1966
ECONOMIC REPORT, DATED JANUARY 27:
"IF IT SHOULD TURN OUT THAT ADDITIONAL INSURANCE
[AGAINST INFLATION] IS NEEDED, THEN I AM CONVINCED THAT
WE SHOULD LEVY HIGHER TAXES RATHER THAN ACCEPT INFLATION--
WHICH IS THE MOST UNJUST AND CAPRICIOUS FORM OF TAXATION."
YET WHEN FLEETING TIME DEMANDED DECISION--SHALL WE
SAY IN MARCH--THE PRESIDENT IGNORED THIS CONSENSUS FOR
GERALD
LIBRARY
RESTRAINT THROUGH THE USE OF FISCAL POLICY--EITHER A SHARP
REDUCTION IN NON-ESSENTIAL, NON-MILITARY SPENDING OR A
-16-
TAX INCREASE. HE IN EFFECT TURNED HIS BACK ON THE NEW
ECONOMICS IN FAVOR OF HIS OWN BRAND--A DANGER OUS MIXTURE
OF POLITICS AND ECONOMICS. IT WAS A RETURN TO THE OLD
ECONOMICS. THE ECONOMICS OF UPS AND DOWNS IN THE ECONOMY
THE ECONOMICS OF BOOM, INFLATION, RECESSION AND PERHAPS
EVEN DEPRESSION.
SAID THE NEW YORK TIMES EDITORIALLY ON MARCH 13:
"BY NOW, A WIDE RANGE OF ECONOMISTS, BANKERS AND OTHERS
ARE CALLING FOR A TAX INCREASE TO HELP FINANCE THE ARMS
BUILDUP IN VIETNAM AND RESTRAIN INFLATIONARY FORCES IN THE
ECONOMY."
MR. JOHNSON IGNORED THOSE VOICES. HE SPURNED THE
PLEAS OF MOST OF THE NATION'S FOREMOST ECONOMISTS. HE
TURNED A DEAF EAR TO THE ADVICE OF CONGRESS'S JOINT
ECONOMIC COMMITTEE.
?
YET WHAT HAD LEADING ADMINISTRATION SPOKESMEN TOLD
-17-
THE BUSINESS COUNCIL APPROXIMATELY ONE YEAR AGO TODAY ?
MR. ACKLEY TOLD YOU THAT EITHER A LAGGING ECONOMY OR AN
OVERHEATED ONE WOULD BE DEALT WITH BY THE GOVERNMENT.
SOME OF YOU MEN HAD VOICED CONCERN ABOUT INFLATION,
AND THIS IS WHAT VICE PRESIDENT HUMPHREY TOLD YOU THEN:
"WE MUST PROVIDE FOR WHATEVER EXPANSION OF OUR DEFENSE
EXPENDITURES THE SITUATION REQUIRES. BUT WE SEE NO PRESENT
LIKELIHOOD THAT EXPENDITURES WILL RISE ENOUGH TO BRING THE
THREAT OF INFLATION. IF THEY DID, THE PRESIDENT OF THE
UNITED STATES WOULD TAKE APPROPRIATE FISCAL AND MONETARY
ACTION AND BUDGETARY ACTION TO THROTTLE THAT INFLATION.
I CAN ASSURE YOU OF THAT TONIGHT. HAVE NO DOUBT ABOUT IT."
?
I ASK YOU--HAS EFFECTIVE GOVERNMENTAL ACTION OF THE
KIND DESCRIBED BY THE VICE PRESIDENT BEEN EMPLOYED TO
THROTTLE INFLATION ? THERE HAVE BEEN NO MEANINGFUL VETOES
-18-
OF EXCESSIVE SPENDING MEASURES PASSED BY A RUNAWAY
MAJORITY IN THE CONGRESS. NO WITHHOLDING OR EARMARKING
OF APPROPRIATED LOW-PRIORITY FUNDS BY THE WHITE HOUSE.
LET ME MAKE IT CLEAR. WE IN THE MINORITY HAVE
CONSISTENTLY EMPHASIZED THAT FEDERAL SPENDING CUTS ARE THE
BEST WEAPON AGAINST INFLATION.
WE SPELLED THIS OUT IN
OUR OWN STATE OF THE UNION MESSAGE LAST JANUARY WHEN WE
SAID: "TO HALT INFLATION WE MUST CURB FEDERAL SPENDING.
THIS REQUIRES THE PRESIDENT AND THE CONGRESS TO SET
PRIORITIES IT IS IMPERATIVE THAT THE PRESIDENT IN HIS
BUDGET CLASSIFY HIS SPENDING PROPOSALS ACCORDING TO
NECESSITY AND URGENCY. IF HE FAILS TO DO SO, WE CALL UPON
THE DEMOCRATS IN CONGRESS TO JOIN US IN ELIMINATING
REDUCING OR DEFERRING LOW PRIORITY ITEMS."
THE TIME WHEN A TAX INCREASE MIGHT PROPERLY BE USED
TO COOL OFF THE ECONOMY MAY WELL HAVE PASSED. I HAVE THE
-19-
FEELING THAT NOBODY IN THE ADMINISTRATION QUITE KNOWS
WHAT TO DO NOW--EXCEPT RIDE OUT THE STORM.
THE JOHNSON ADMINISTRATION HAS NOT LIVED UP TO ITS
PROMISES TO YOU.
POLICIES UNENFORCED, DECISIONS AVOIDED, AND CHOICES
PASSED OVER. THIS IS THE OTHER SIDE OF THE NEW ECONOMICS,
AS PRACTICED BY THE ADMINISTRATION. THUS IT IS / THAT THE
NEW ECONOMICS HAS BECOME A CASUALTY OF ELECTION-YEAR
POLITICS. THUS IT IS / THAT WAGES AND PRICES ARE CAUGHT
UP IN/AN INFLATIONARY SPIRAL WHOSE END WE CANNOT SEE.
WE ALL KNOW THAT THE JOB OF TAMPING DOWN THE ECONOMY
THIS YEAR WAS THRUST ALMOST ENTIRELY ON THE FEDERAL RESERVE
BOARD. THAT TASK WAS ALMOST HOPELESS IN THE FACE OF
GROWING COMMITMENTS IN VIETNAM LARGER OUTLAYS FOR THE
GREAT SOCIETY, AND RISING CONSUMER DEMAND
GERALD
LIBRARY
I THINK AN INCOME TAX INCREASE NOW WOULD PROBABLY
-20-
GIVE THE ECONOMY A SEVERE JOLT. BUT IF THE ADMINISTRATION
DEMANDS IT,/IT WILL BE IN THE NAME OF THE VIETNAM WAR.
IN THAT LIGHT, LET ME CALL YOUR ATTENTION TO AN
OCTOBER REPORT ON TIGHT MONEY PUBLISHED BY THE BANK OF
AMERICA'S RESEARCH STAFF. THIS REPORT STATES THAT WHILE
MILITARY SPENDING IN THE FIRST SIX MONTHS OF 1966 EXCEEDED
THAT FOR THE COMPARABLE PERIOD IN 1965 BY $5.1 BILLION
NONDEFENSE SPENDING FOR THE SAME PERIOD ROSE BY
4.5 BILLION.
WITH THAT, BANK OF AMERICA EXECUTIVES CONCLUDE THAT
THE ADMINISTRATION SHOUL D RESTRAIN OWER PRIORITY SPENDING
PROGRAMS AND FUND NO NEW PROGRAMS UNTIL CURRENT
INFLATIONARY TRENDS ABATE. THIS IS WHAT SENATOR DIRKSEN
AND I HAVE BEEN ADVOCATING FOR MONTHS. LESS FEDERAL
SPENDING ON LOW-PRIORITY, NON-MILITARY PROGRAMS MIGHT WELL
HAVE COOLED OFF INFLATIONARY PRESSURES AND AVOIDED THE
BERALD FORD LIBRARY
PROSPECT OF ADDITIONAL FEDERAL TAXES.
-21-
ONE OF THE DANGERS NOW FACING THE ECONOMY IS THAT LABOR
WILL GO FOR BROKE ON ITS 1967 WAGE NEGOTIATIONS. WE SORELY
NEED A WAGE-PRICE STABILIZATION PLAN--A WORKABLE ONE. THE
ADMINISTRATION TORPEDOED ITS CONTROVERSIAL 3.2 PER CENT
WAGE-PRICE GUIDEPOSTS BY INDULGING IN THE FICTION THAT
THE PRESIDENTIALLY-ENDORSED PROPOSAL FOR SETTLING THE
AIRLINES STRIKE WAS NON-INFLATIONARY.
IS IT MISCALCULATION OR POLITICS ALONE WHICH HAS
DERAILED THE NEW ECONOMICS? I SHALL LEAVE THAT FOR YOU
TO JUDGE.
HAVING REVIEWED THE STATEMENTS MADE BY ADMINISTRATION
SPOKESMEN A YEAR AGO, IT IS DIFFICULT TO SEE HOW THEY
PROVIDED YOU WITH MUCH USEFUL KNOWLEDGE ABOUT THE FUTURE
COURSE OF YOUR GOVERNMENT AND THE ECONOMIC DEVELOPMENTS
FORD
TO BE EXPECTED AS A CONSEQUENCE.
will
GERALD
LIBRARY
THIS HAS BEEN A PRETTY GRIM MESSAGE, AND I AM NOT
-22-
GOING TO TRY TO PREDICT WHAT LIES AHEAD.
THE JOB OF FORECASTING THE FUTURE IS A TOUGH ONE, AS
MR. ACKLEY WILL ATTEST.
THERE ARE HITS AND ERRORS IN NEARLY EVERY PERFORMANCE,
AND THIS IS TRUE OF THE CONGRESS AS WELL AS THE EXECUTIVE
BRANCH.
l' D LIKE TO TELL YOU A LITTLE STORY NOW--A TRUE STORY--
ABOUT CAPITOL HILL AND ONE OF ITS GREAT HUMORISTS, SENATOR
NORRIS COTTON OF NEW HAMPSHIRE. THIS HAPPENED DURING THE
1966 WORLD SERIES.
COTTON AND A HALF DOZEN OTHER SENATORS WERE CLIMBING
INTO A SENATE SUBWAY CAR TO GO TO THE FLOOR FOR A VOTE
WHEN THE OPERATOR OF THE CAR REMARKED THAT THE LOS ANGELES
DODGERS HAD COMMITTED SIX ERRORS THAT DAY.
THIS
THE
GERALD
LIBRARY
OPERATOR SAID, WAS AN ALL-TIME RECORD FOR ERRORS BY ONE
-23-
TEAM IN A WORLD SERIES GAME.
"WELL," SAID COTTON WHEN HE HEARD THE NEWS. "THE
ONLY THING I CAN FIGURE OUT IS THAT ALL THE MEMBERS OF THE
DODGERS BALL CLUB MUST BE REPUBLICANS--BECAUSE ONLY
REPUBLICANS COULD DROP THE BALL THAT OFTEN."
HAVING JOINED SENATOR COTTON IN POKING A LITTLE FUN
AT MYSELF AND MY COLLEAGUES, LET ME SAY THAT REPUBLICANS
IN CONGRESS MAY HAVE COMMITTED POLITICAL ERRORS IN
WASHINGTON IN 1966, BUT I SINCERELY BELIEVE THEY WERE
RESPONSIBLE POLITICAL ERRORS--A WILLINGNESS TO FACE HARD
ECONOMIC REALITY EVEN THOUGH IT MAY BE TEMPORARILY UN-
POPULAR. THAT KIND OF ERROR IS LIKE A CHAMPION BALL PLAYER
TRYING TO MAKE THE BIG PLAY IN /A, BALL GAME. THIS IS THE
KIND OF ERROR THAT MAKES PENNANT-WINNERS AT THE END OF THE
SEASON-WHEN IT COUNTS--AND THAT DAY OF RECKONING IS NOT
LIBRARY
FAR AWAY.
[END]
M
MANUFACTURERS HANOVER TRUST COMPANY
350 PARK AVENUE, NEW YORK, N.Y. 10022
GABRIEL HAUGE
PRESIDENT
October 19, 1966
Dear Jerry,
I received the draft of your Business Council
speech this morning and have just finished
reading it. Because you indicated you wanted
my comments by tomorrow morning at 10, I am
dictating these few notes immediately and get-
ting them into the mail, together with the
draft on which I have made a couple of very
minor editing points.
I think it's a very good draft and my main
comment would relate to an additional way of
approaching the new economics.
First of all, I think it is desirable that you
have taken a constructive attitude toward the
so-called Keynesian approach because one gets
nowhere in just consigning the whole analysis
to perdition. The one suggestion I would make
is this: you attribute Johnson's failure to
call for more adequate fiscal measures in 1966
pretty much wholly to politics. I would not
disagree with that and I think that it is very
likely true. I would add this thought: to the
extent that his decision was not wholly political
it was an outgrowth of a fatal miscalculation
made by his advisors and himself last year when
they prepared their recommendations for the Con-
gress in January 1966. The miscalculation re-
lates to the consequences of Johnson's call in
July 1965 for a step-up of the war over in Viet
Nam. Had the impact of that announcement been
properly foreseen, and that is the job of govern-
ment, he should have come forward with proposals
for much tighter spending recommendations and
very likely also with tax recommendations in
January.
BERALD FORD LIBRARY
- 2 -
October 19, 1966
What I am saying, Jerry, is that I think you
can hit him with a one-two punch. You can
charge him with either or both miscalculation
and politics.
Warm regards.
The Honorable Gerald R. Ford
Sincerely Sabe yours,
House of Representatives
Washington, D. C.
FORD is LIBRARY 938839
MINORITY LEADER
United States
House of Representatives
October 18, 1966
Dear Gabriel,
Attached is a copy of the first draft of a
speech which I am to give to The Business
Council Saturday evening, October 22, at
Hot Springs.
I would appreciate your suggestions as to
any corrections, deletions or additions;
and I would be grateful for any comment.
It would be helpful if I could receive your
copy along with your comments by 10 o'clock
on Thursday morning.
Sincerely,
Jerry Ford
/1r
FORD is LIBRARY GENALD
FOR RELEASE NOON
THURSDAY OCTOBER 20 1966
REMARKS BY DR RAYMOND J SAULNIER, PROFESSOR OF ECONOMICS, BARNARD COLLEGE,
COLUMBIA UNIVERSITY, PREPARED FOR THE ECONOMIC SYMPOSIUM AT THE ANNUAL MEETING
OF THE AMERICAN LIFE CONVENTION, DENVER HILTON HOTEL, DENVER COLORADO
THURSDAY OCTOBER 20 1966
We are here today to talk about the economic and financial problems of the United
States. I need not tell you that they are numerous. And I need not add that
they will not be easy to solve. Let me begin by giving you my assessment of what
these problems are.
AN ACCUMULATION OF PROBLEMS
FIRST, we have price inflation in the U.S. economy We had to deal with this
problem in the nineteen fifties but by 1960 it had been overcome. Now we are
again faced with inflation. So far this year wholesale prices of industrial
goods have been riging at an annual rate close to 3 percent. In the first eight
months of 1966 the consumer price index rose at a rate which if continued for
a full year, would raise the cost of living 3-3/4 percent. Food prices are rising
fastest of all but the costs of services are going up nearly 4.5 percent a year
and prices of commodities other than food are rising significantly faster than
in the previous two years.
SECOND, we have cost inflation in the U.S. economy We had to cope with this
problem, too, in the nineteen fifties, but by 1961 labor cost per unit of output
had been stabilized. Now we are again faced with rising costs per unit of output
In the past six months increases in wages and fringe benefits have been
outstripping productivity improvement to an increasing extent As a result
FORD i LIBRARY GERALD
- 2 -
labor cost per unit of output for the corporate economy as a whole is rising at
an annual rate which exceeds 4 percent.
THIRD, the balance of the U.S. economy has been upset by unsustainable increases
in capital goods spending. Between the second quarter of 1965 and the second
quarter of 1966, plant and equipment expenditures rose nearly 20 percent while
GNP rose just under 9 percent. Simple arithmetic tells one that this disparity
cannot continue indefinitely.
FOURTH, the deficit in the U.S. balance of payments remains uncorrected. Indeed
it has become larger On the "liquidity" basis its seasonally adjusted annual
rate was $1.4 billion in the first half of 1966 as compared with $940 million in
the first half of 1965. On the "official reserve transactions" basis similarly
expressed for the same periods it was up nearly 15 percent. The longer this
deficit continues the higher. our short-term dollar liabilities to foreigners
mount, and the lower our gold supply drops.
In short, we have not been solving problems. We have been producing problems,
and stockpiling them.
HOW THEY CAME ABOUT
The question -- How did these problems come about? -- is by no means an academic
one. It has obvious relevance to the question: How can they be corrected?
Basically this new inflation and this imbalance came about because in an economy
heavily affected by rising defense expenditures expansionist fiscal and monetary
policies were pushed too hard and continued too long.
FORD & LIBRARY GERALD
- 3 -
The extent of expansionism can be judged from the following: comparing the five
calendar years 1961-65 with the previous five years, the rate of increase of
federal spending nearly doubled; the total of administrative budget deficits
was up four times; and these recorded spending and deficit increases would be
even greater if it were not for the veiling of many billions of dollars of
expenditures by the sale of financial assets. Multiplying the impact of this
fiscal ease, average annual increases in the money supply also quadrupled.
Expansionism on this scale is a sure recipe for trouble And it would have caused
trouble even sooner but for the fact that fiscal and monetary restraint in the
second half of the nineteen fifties had restored cost and price stability in the
U.S. economy by the end of the decade and prepared the way for a reasonable
degree of expansionism. Indeed, policy was already being shifted to the
expansionary side in 1959. But in the nineteen sixties it was pushed too hard.
And sin of sins, the closer the economy got to full employment the more
expansionary policy became. Thus, in the second half of 1965 -- surrounded by
evidence of emerging cost and price inflation with an exceptionally large
expansion of capital goods spending in full swing and with U.S. military forces
more and more deeply involved in warfare halfway round the world -- the pressure
of expansionist policies was intensified when it should have been moderated.
Moderation. then would have avoided a good part of the problems that confront
us now.
Ultimately, a shift in policy had to come -- and it did. But it was late in coming
about nine months late, I would say, and when it came it was one-sided. With
fiscal policy increasingly expansive monetary policy was left alone to hold the
fort. Moreover there appears to have been enough division of opinion among the
FORD i LIBRARY 076839
- 4 -
monetary authorities to allow money supply expansion to accelerate for several
months after the December 1965 increase in the discount rate. But, beginning
around the first of May 1966, monetary policy turned abruptly restrictive. With
the economy charging ahead, and with the commercial banking system loaned up to
a degree unheard of for forty years, the inevitable result was last summer's
skyrocketing of interest rates a collapse of stock prices, and a serious
impairment of confidence. All in all 8 destructive and damaging experience;
moreover, an unnecessary one
So much for what has happened. Looking to the future, we have four principal
problems:
FIRST - How to finance rising defense expenditures 80 38 to prevent
inflation from accelerating.
SECOND How to work our way back to cost and price stability.
THIRD - How to move to a rate of increase of capital goods spending
that is sustainable without interrupting the economy's
overall growth.
FOURTH - How to bring the deficit in our international payments within
manageable limits.
These are formidable problems, to be sure. And it goes without saying that we
must solve them without bringing on recession in the United States and without
precipitating deflation abroad. But they are not impossible of solution.
Naturally, approaches to them must be developed on the basis of definite
assumptions concerning the economic outlook. Since I propose to conclude these
remarks with some policy suggestions let me turn briefly to the near-term outlook
for the U.S. economy.
FORD i LIBRARY GERALD
- 5 -
THE NEAR-TERM OUTLOOK
Essentially the evidence is telling two stories. For some months this year
business cycle indicators have been saying that the economy was approaching a
cyclical peak. On the other hand, the outlook for defense spending has been telling
us that the economy would be under heavier and heavier upward pressure.
As it stands, defense spending has the upper hand. It was evident in the August
figures that this factor in the economy was smothering the tendencies to cyclical
slowdown. Weekly figures show this was also the case in September And it
continues in October. Accordingly the large GNP increase just reported for the
third quarter was no surprise and we can expect another in the fourth quarter.
Moreover because I expect defense expenditures to continue to rise strongly, I
expect a continuation of quarterly GNP increases in the first half of 1967.
Corrently there is a good deal of debate as to what will happen after mid-1967.
There are cyclical factors on the minus side so to speak: and the importance of
defense spending in the economy makes the situation doubly precarious. But because
I can only assume that our economy will be increasingly engaged in supplying militery
forces in Vietnam throughout the year, I am proceeding in the belief that there will
be no overall downturn in 1967 in production or income. On the contrary, I expect
the economy to continue -- in the second half of 1967 as well as in the first -- to
be under a high and rising pressure.
In the circumstances. the balance of policy should be on the side of moderating the
expansion of demand. The reasons are twofold: this is the way to resist inflation;
and this is the way to improve our posture for resuming a more civilian-oriented
growth in that happy and devoutly-hoped-for time when defense requirements recede.
FORD & LIBRARY GERALD
- 6 -
But here let me express 8 word of caution. Although we need an anti-inflation
program what in Western Europe would be called a stabilization program -- in
view of the precariousness of our cyclical position it will be important not to
carry it too far not to over-react. While stabilization measures should be applied
firmly the best strategy will be one that corrects our accumulation of problems
in easy stages. Moreover, we will be well advised to stay flexible in policy.
POLICY SUGGESTIONS
FIRST, new budget estimates for the current fiscal year are needed at once.
Especially, we need a realistic assessment of defense spending requirements,
which have been consistently underestimated. In what is to all intents and
purposes a war economy, it is impossible to plan monetary policy, let alone
fiscal policy, without having a candid assessment of what military operations
are going to cost. Actually, a revised budget was needed several months ago
when it became evident that the assumption on which the January budget was
based, namely, that military operations in Vietnam would be over by July 1967.
was no longer valid. The fact that Congress had not finished its work on the
original budget requests was no basis for delay. Guessing what Congress will
do is far from our most difficult estimating problem. Nor should the political
calendar be a consideration in such matters.
SECOND, based on an up-to-date and realistic budget the Administration should
propose to Congress a fiscal program that will significantly reduce and
ultimately eliminate the inflationary effect of deficit federal spending.
Beyond that it should be a fiscal program that will permit an easing of
monetary policy, The object should be to move the federal budget toward
FORD & LIBRARY GERALD
- 7 -
balance. And, in figuring whether this is being accomplished or not net
sales of federally-held financial assets should be added to the deficit as
presently reported in the administrative budget.
THIRD, efforts to hold down, and ultimately to eliminate the federal
budgetary deficit should start with limitations on federal spending
Defeatism is the typical mood on this subject, but it needn't be. As an
illustration of expenditures that could be re-examined to advantage, let me
recall that federal credit programs alone are budgeted to disburse $8 billion
in fiscal 1967.
FOURTH, if the executive branch concludes that it cannot take enough of the
inflationary effect out of the budget by expenditure limitation -- and I
trust it will not reach that conclusion -- it should propose a broadbased
temporary tax increase that will do the job. Because what we face is basically
a problem in war finance it is consumption not investment, that needs to
be curbed. The tax program if there is to be one should be designed with
that in mind,
In this connection let me remark that the suspension of the investment tax
credit was not only badly timed -- because there was evidence already of a
slowing down in the increase of new orders for machinery and equipment --
but as an anti-inflationary fiscal measure it was totally unsuited for our
present needs. And coupling the suspension with a promise of reinstatement
in January 1968 can only produce a kind of "new orders airpocket" in an
industry which at this time we should be trying to stabilize not destabilize
FORD & LIBRARY GERALD
- 3 -
FIFTH, our economy needs a moderate easing of monetary policy. As I have
already stated, an adequate fiscal program would permit such an easing. In
the absence of fiscal restraint monetary policy has been severely restrictive
Although last summer's abrupt move from money supply inflation to money supply
deflation will not go down as one of the Federal Reserve System's most
skilful operations responsibility for what was a near-crisis in U.S. financial
markets -- with serious repercussions abroad -- rests more heavily on fiscal
policy. While the monetary authorities were belatedly trying to slow things
down fiscal policy was all the time pulling in an inflationary direction.
Our long-suffering economy has endured all of this tug-o-war it can safely
stand.
SIXTH, competition for savings should be restored as soon as possible by
eliminating the ceilings imposed recently on savings account interest payments.
We should be doing everything possible to encourage thrift, not putting
ceilings on what people can be paid for their savings.
SEVENTH, although it was a year late in coming the decision to abandon
financial asset sales was a good one. But it created a new debt-management
problem and to ease this problem it should have been coupled with a request
to Congress to abandon the 4-1/4 percent statutory interest rate ceiling on
long-term federal debt. In order to permit rational noninflationary debt
management a request for the elimination of this relic of Populist sentiment
should be made promptly.
EIGHTH, labor cost increases must be brought back to parity with average
productivity improvement. This is not a job for guideposts. It should be
FORD & LIBRARY GERALD
- 9 -
clear now that they are futile unless backed up by an adequate fiscal and
monetary policy. And if monetary and fiscal policy is adequate they aren't
needed. Thus, the most helpful thing government can do to stabilize labor
cost per unit of output is to avoid inflationary fiscal and monetary policies.
Next government should take steps to find equitable ways to equalize the
competitive positions of labor and management in contract bargaining. A
Presidentially-appointeo Citizens Commission -- its members without commitment
either to labor or management -- to make recommendations to this end would
be a constructive move.
Finally, the Administration must stand firm on two principles: (1) it is
inflationary to include cost-of-living increases in wage settlements; (ii)
the only workable standard for noninflationary wage settlements is the average
rate of productivity improvement across the economy not in specific industries.
Deviations from these two principles accelerate inflation; and not a word
should be spoken by government and not an action taken, that will lead
anyone to believe anything else.
NINTH, noninflationary fiscal and monetary policies are also essential to help
bring our international payments closer to balance. It is already clear --
as U.S. interest rates have moved closer to those abroad -- what monetary
policy can do. The next move is up to fiscal policy.
Beyond that, there are many specific approaches to be pursued. Our present
program is a mixture of positive and negative elements. We must put more
stress on positive elements: on increasing exports in which the avoidance of
cost inflation is crucial and attracting foreign capital and visitors to the
FORD is LIBRARY SERALD
- 10 -
United States. The principal negative element -- limitations on private capital
outflow -- if continued for long will seriously undermine our international
economic position. Moreover, limitations on the free flow of capital constitute
8 retreat from the liberal international commercial policy in which the United
States should provide world leadership. One imperative of U.S. policy must
be to eliminate these backward-looking and self-defeating measures as soon as
possible.
There are possibilities within the sphere of government transactions. With
the deficit what it is the tying of foreign assistance must unfortunately
be continued. It should be strengthened wherever necessary. And every
encouragement should be given to moves to reduce U.S. military forces in
Western Europe.
TENTH, it must be obvious now that we must learn to reduce the hardcore
unemployment that remains even at high-employment levels not by overheating
the entire economy with aggregate demand but by lifting the employability
of the unemployed through programs designed specifically for this purpose.
More and more of this is being done but still not enough. We should be
spending on such programs every dollar that can constructively be used in
them. This is the structuralist approach to the reduction of residual
unemployment. To help make it effective we need a thoroughgoing census of
unemployment and continuing information on job vacancies.
FORD is LIBRARY GERALD
- 11 -
A REFORM MOVEMENT COMING UP?
You will judge from these remarks that my major quarrels with economic policy are
(1) that it has pushed the economy when it needed no pushing; (ii) that it has
tried to do with guideposts and so-called voluntary restraints what it should
have done with monetary and fiscal policy; and (iii) that when it came to
restraint, it left the job to all intents and purposes entirely to monetary
policy.
I should like to think it possible to start a reform movement on each of these
three points. And, seriously I expect policy to move in that direction. Indeed
my final forecast for today is that policy in 1967 will follow pretty much the
lines implicit in the suggestions made in these remarks. Not, mind you, because
I have suggested them, but because they are the only lines of policy that make
sense in the circumstances. And I am enough of an optimist to believe that what
makes sense will eventually come out on top. If it does, we have a good chance
of achieving, in the remaining years of this decade and in the nineteen seventies
the spectacular advances of which our economy is capable. If it doesn't the
next list of problems will be a longer one. We shall see.
New York City
October 17 1966
Raymond J Saulnier
FORD is LIBRARY 9ERALD
First Draft
10/17/66
Gerald R. Ford
MR. CHAIRMAN, DISTINGUISHED MEMBERS OF THE BUSINESS COUNCIL,
COLLEAGUES IN GOVERNMENT, AND GENTLEMEN --
In recent weeks the Lone Star chief of the Eastern Establish-
ment has been ranging marginal areas in this country and, now, in
the South Pacific, shoring up his consensus.
On the domestic hustings a couple of weeks ago this zeal for
unity led him to suggest that the political minority in the United
States acts and speaks from fear.
That statement may have been adroit, but was factually nuts.
We have the proof right here.
The very fact that the House Minority Leader has dared into
this place, before this eminent and astute audience, along with Tom
Curtis of Missouri, demonstrates that we Republicans are bold, we are
venturesome, one could even say we are foolhardy.
But I do prize your invitation, and I thank you for it. And
because it is at once honor, challenge and opportunity, I have thought
long and hard about an appropriate message.
Not that good speech topics are scarce these days.
For instance, my first impulse was to explore with you the poli-
tical inflation and questionable credit that accompany the escalating
dues to the President's Club.
But I was warned against this. I was told it might spark a
Boosters' Club backlash. I avoid the topic, therefore, for one
GERALD FORD LIBRARY
- 2 -
compelling reason: For both parties, in this group especially,
it could lead to disaster -- contributory negligence.
Next I thought of appraising the public health and safety.
But I discovered this would alarm both tobacco users and Ralph
Nader. After all this is Virginia, and I am from Michigan. So it
seemed prudent to find another theme.
Then I considered air and water pollution.
But no -- coming from Capitol Hill, I cannot in good conscience
raise the first. And this spot, famed for mineral waters, is hardly
the place to stress the latter.
So, gentlemen, in some desperation I then retreated to the
politicians standby -- -- Truth. I got into this project with enthusiasm,
happily examining the credibility gap -- of course, in a non-partisan
way. Then various of my friends on the Commerce and Banking and
Currency Committees said even Truth has gone off limits, because of
business concern over "Truth in Packaging" and "Truth in Lending." I
believe your distinguished Chairman, among others I see here, experienced
recent discomforts in this area.
It is evident, therefore, that the noncontroversial is too con-
tentious, and the unpolitical much too partisan, to be suitable here.
I have turned, therefore, to a topic certain to be bland and
inoffensive a reminder of what your Council was advised here 12
months ago by Administration leaders, contrasting this with what has
actually happened. Doing so may offer us perspective on what they are
- 3 -
advising now.
So let me refresh your memory.
Last year almost every one of your government speakers
rhapsodized over "the previous fifty-six months of 8 ntinued ex-
pansion." But strangely, not one thought to mention, first, that
during all this period the use of credit had to be increased at a
rate much more rapid than the rate of expansion of income or, second,
that the liquidity of corporations and commercial banks had been re-
duced year by year. It is interesting -- and not a little worrisome
-- that these basics escaped the attention of such expert observers.
One wonders if our present concerns over tight money, high interest
rates and rising prices paid by consumers could possibly relate in
any way to these underlying considerations SO curiously unmentioned
a year ago.
Last year Economic Council Chairman Gardner Ackley was quoted
as saying, "I am optimistic about the continued stability of costs
and prices." He also said, "Government has the weapons and the will
to maintain expansion within non-inflationary bounds." Some of you
may also recall that he was reported to hold out hope for further tax
cuts for low income families in this year of 1966.
These views of the President's top economic advisor, I must say
in fairness, did include a reservation. He acknowledged the possi-
bility that outlays required to carry forward the part-time Great
Society program -- the Viet Nam war -- might over-heat the economy.
- 4 -
And a week previously Secretary Fowler had said that, if the pros-
pective Viet Nam costs were $10 billion or more, he would be thinking
about a tax increase. But lest anyone be too disturbed, the Secre-
tary quickly went on to indicate that he was not really contemplating
such an increase after all.
Now, in reviewing these remarks, isn't it puzzling -- certainly
Ifind it so - that the President's top economic advisor and even the
Secretary of the Treasury were apparently so much in the dark on pros-
pective military expenditures and what to do about them. We at the
Capitol, I may say, had strong indications as to those figures and
publicly voiced them time and time again. One hesitates to conclude
that none of the Administration civilian leaders understood what was
being planned or what was to be required. The alternative conclusion
---- that they knew but didn't say -- is even worse.
It is true that Mr. Fowler was exercised over deepening troubles
in the international monetary mechanism. You recall what he said
here: "Despite its many and great virtues and accomplishments, our
international monetary system stands at a crossroads. Since 1958,
the United States' balance of payments deficits have supplied the
principal source of additional liquidity to the world monetary system.
About three-quarters of the new official reserves of other nations
have been built out of these deficits, and large foreign private hold-
ings of dollars have added to the potential strain on United States' I
reserves."
- 5 -
Actually, quite a few financial experts have grown apprehensive
over the kind of liquidity mentioned by Secretary Fowler. Some of
them advise me that the liquidity which we have produced in the
world monetary system has been -- and still is -- one of the principal
elements in world price inflation. It is well known that both friend-
ly and not-so-friendly central banks have drawn upon our gold reserves
to protect themselves against the consequences of the political finance
which we employ.
Yet, even in this area Secretary Fowler was not all gloom and
doom. Indeed, he radiated optimism saying: "We are now well along
in the process of ending our deficits and bringing our international
payments into sustainable equilibrium. The President, the Congress
and informed financial authorities around the world allare agreed
that the United States must put its international accounts in order,
and keep them SO
to arrest drains of the United States'
reserves that have flowed from some portion of these deficits being
paid off in United States' gold. That erosion cannot go on indefi-
nitely. It must be, and is being, stopped now."
How good it was to have those reassuring words last year. Now,
however, let's take a look. The Foreign Trade Council estimates the
deficit in the United States international accounts as approximating
$2.5 billion in 1966. This compares to $1.3 billion reported on an
Official Transactions Basis in 1965. Has something gone wrong with
- 6 -
our firm pledge to put our international accounts in order? What
happened to the ending of the drain of gold which, as the Secretary
said twelve months ago, cannot go on indefinitely? As a matter of
fact, do we find here a parallel with the touted fifty-six months
of continued expansion, -- an expansion, however, financed by an
unsustainable reduction in corporation and bank liquidity and a simi-
larly unsustainable increase in credit use greatly exceeding the in-
crease in income payments? It was good to have such categorical
reassurances a year ago. Today one wonders why and how they could
have been made. One wonders if the nation is getting not commitments,
not candid predictions, but perhaps hopeful expressions related not
necessarily to fact but to hoped-for public attitudes.
Events do seem to have borne out Secretary Fowler's statements
in one important respect. I refer to the opinion he stated here that:
"Our international monetary system stands at a crossroads."
Now, one could agree with that opinion a year ago. We could all
agree with the same statement if repeated today. This raises a couple
of interesting questions. What new road is to be traveled if and when
the crossroad is crossed? Also, just where has the crossroad gone?
Apparently we have been immobilized there for 52 weeks.
Last year Vice President Humphrey also shared some helpful ideas
with your Council. He said here, "We see no present likelihood that
expenditures are rising enough to bring the threat of inflation. If
- 7 -
they did the President of the United States would take appropriate
fiscal and monetary action and budgetary action to throttle that in-
flation. I can assure you of that tonight. Have no doubt about it."
After these happy thoughts, the Vice President discoursed for
a time on the wealth of the nation and the size of the gross national
product. You may recall his conclusion: "Not only will we be able
to press ahead, therefore with the necessary defense, but we will
also be able to move ahead prudently with some of the programs that
your Government and this Administration have sponsored for the Great
Society."
Well, we had to wait a few months for the President's budget
before we found out what this reassurance meant. We found that the
Great Society programs, immense as they already were, were being ex-
panded. We found that tax collections would be accelerated. We dis-
the heavy
covered that/expenditures reported would be politically defused by
refinancing conducted by Federal agencies. And we were surprised to
note that the war in Viet Nam would end precisely and completely on
June 30, 1967, if the Federal budget could be accepted as a guide.
Taken all together, we made a fascinating discovery. Here in
the United States were were adopting the ancient practice of the Chinese
war lords who required that taxes be paid five years in advance. This
is a fiscal delight for people in government whose aspirations exceed
current income, but it has one weakness. It develops a vacuum in tax
- 8 -
receipts later on unless the tax rates are increased.
We also found that many businessmen had not read the Vice Presi-
dent's reassurances as perhaps he intended, hence they were unprepared
for accelerated tax payments. These unfortunates were forced to
borrow the required funds. The result was in full harmony with the
economic axiom. When bank and corporate liquidity has been brought
to the lowest levels in decades, and when businessmen are thus obliged
to borrow to pay their taxes, interest rates are bound to go up.
As a matter of fact, as one reviews these official statements of
a year ago, it becomes very difficult to see how they provided your
Council much useful knowledge about the probable conduct of public
affairs or the economic developments to be expected as a consequence.
Nevertheless, after your meeting the newspapers reported that you were
optimistic. If this viewpoint was fairly reported, I presume you were
optimistic because you believed that aggregate income would go up and
that the sales of many businesses would expand. I suspect you also
exercised your prerogative of drawing your own conclusions from what
you had been told by people in high places and, possibly more speci-
fically, from what you were not told.
Now, just a word here to reposition ourselves in the situation
that prevailed 12 months ago.
for various reasons,
A year ago,/most businessmen were deciding to raise their invest-
ment in plant and equipment. Government policy was obviously to spend
- 9 -
more, probably considerably more than the amounts officially stated,
so a lusty demand for goods seemed assured. Industry was operating
at boom levels. It was a time of substantially full employment. So
businessmen by and large continued to pour more spending into plant and
equipment. It is this combination of circumstance that brought invest-
ment in plant and equipment to levels which I understand a number of
reputable economists consider unsustainable.
It was in the same period, as you know, that labor leaders re-
cognized a good thing when they saw it. With industry booming, with
corporate profit margins at the most satisfactory level in years, and
with deeply obligated officials in charge in Washington, Labor saw
little reason not to press for sharp wage increases. Since then,
guidelines or no guidelines, wages have been increased beyond the
rate which can be offset by increased productivity. Moreover, we
should note here our habit of dealing in national aggregates. This
obscures an important fact - that changes in the rate of productivity
in different industries and different businesses are quite different.
The fact is, these national aggregates mean little unless the wage and
productivity rates of specific businesses and products have been deter-
mined in the operation of a real market economy in which no participant
is permitted to use force. To some extent this truth was recognized
in the President's Economic Message of January, 1962, when the concept
of wage-price guidelines was first presented. Since then, however, re-
servations about the use of guidelines have been more or less forgotten,
- 10 -
and now the guidelines themselves have become virtually ignored.
Well then -- with government spending skyrocketing, with larger
investments in plant and equipment and with larger wage demands, in-
come payments and consumer expenditures of course have gone up. Well
and good, except for one thing -- despite the pledges made here a
year ago, the resulting economic expansion has been accompanied by
inflation. This misfortune has been indulged to the point that it has
reduced not only the value of the higher wages, but it has also cut
deeply into the value of all savings accumulated during the long past
by literally millions of hard-working, self-reliant and pr oductive
Americans. I will simply say, it has been a cruel thing for Mr.
Average American that the Administration has done.
I am sure it is generally appreciated that the Administration
has forced the Federal Reserve to bear the brunt of responsiblility
for restricting inflationary expansion. Allthe while it has increased
expenditures while imploring others to exercise restraint.
I suppose that in a previous time this might have worked better.
But, in the present, it seems increasingly evident that high and pro-
gressive tax rates have reduced the effectiveness of monetary policy.
The economic reformers who advocated the use of high and progressive
tax rates to redistribute income probably never foresaw that the tax
procedure, which they proposed, would reduce the cost of borrowed
money to those who pay high tax rates on current income. On the other
- 11 -
hand, if interests costs are not deductible in computing taxable
investment
income, it is at least doubtful that a high volume of interest,
income and employment can be maintained. I am sure I don't need
to spell this out in detail. But I do invite your attention to this
fact -- efforts to reform the distribution of income by use of tax
policy seem to have impaired the effectiveness of monetary policy
as a means of restraining inflationary expansion.
Actually, it is a good question whether fiscal policy, so
esteemed by many businessmen, bankers and economists, can really
produce results we want and need in the present situation. A year
ago many people called for higher tax rates to provide funds required
to finance the war. Secretary Fowler told you here, as noted earlier,
that he would propose higher taxes if he thought the prospective cost
of Viet Nam would be $10 billion or more.
I must say, however, that the current widespread belief in the
effectiveness of fiscal policy, as a means of restricting inflation,
seems somewhat naive. Surely, if we raise taxes simply to get into
government hands funds which are then to be spent, the result can only
be to transfer income or funds from the taxpayers to other recipients
of income. This kind of fiscal policy serves only to pour tax water
from one jug into another, while Uncle sips off his portion in admi-
nistrative cost.
Are we to believe that an inflationary spiral can be brought
under control by such means? It would seem that the fiscal policy
GERALS LIDRARY
- 12 -
we need to restrict inflationary expansion would be one which assures
a surplus large enough to offset the effects of deficit financing in
the non-government sectors of the economy. But, even if we should
try this restrictive fiscal policy -- which the present Administra-
tion, I suspect, has neither the desire nor the political courage to
apply -- we would have problems.
In the first place, businessmen will borrow money to finance
accelerated tax payments. It will be interesting, by the way, to see
how much will be borrowed for this purpose next Spring. Second, I am
sure it is no news to you, and certainly not to your accountants, that
taxes on income are a cost. It follows that your prices will go up
as costs go up and as it becomes possible to raise prices. Those who
call for a tax increase, therefore, ought to at least own up to the
fact that prices will be thereby forced up for consumers if the goods
they want are to be available.
I increasingly believe that our basic trouble is this: we insist
on thinking of how monetary and fiscal policies could have been used
in the kind of economy which existed in the past. Such an economy
no longer exists. It has been reformed or restructured, no doubt with
good intentions, to the point where now our bright and shiny fiscal
and monetary procedures produce effects quite different from what we
expect. If that statement sounds extreme, I suggest a rereading of
the official pronouncements of a year ago at this meeting.
- 13 -
In a few more weeks -- perhaps soon after November 8-2 -- you
may hear a good deal more about the character and dollar cost of this
bloody war. Candor may come easier then for those charged with ad-
ministration. With these matters out in the open, I think you may
expect an Administration whimper for more tax revenue. Even if our
new-found friends -- our Communist enemies -- decide to de-escalate
the war in return for the bonanza$ recently proferred by the President,
large scale spending for military operations will not suddenly stop
on June 30, 1967. These costs will stay high for an appreciable
period, come what may. Even an undeclared and computerized war, dir-
ected by political rather than military leaders, is costly from the
viewpoint of the Bureau of the Budget -- as well as the viewpoints of
the men doing the fighting and dying, their families and those persons
who are conversant with these matters.
So, gentlemen, I have to suggest caution, though I should much
prefer to emulate those who see only sunlight and paradise ahead. I
also suggest prudence in again adopting the cheery expectations which
you are reported to have developed a year ago on the basis of what
you were told here.
The period of comfortable inflation with higher sales and profits
seems to be ending. It has already terminated for some. Possibly you
will wish to take a good hard look at the situation in which you will
likely find yourselves in a few more weeks when the government may feel
- 14 -
a bit freer about leveling with the folks at home. As usual, we
will hear that the gross national product will be larger. But nowa-
days the gross national product goes up even during periods of re-
cession. I trust, for this reason, that you will not let these
large amorphous numbers or statements like those uttered here a
year ago give too rosy a hue to your views.
You may remember another point made here by Vice President
Humphrey last year. He said we are not "changing to methods of
socialism."
Now, that was ever so comforting. I do not profess to under-
stand all of the varieties of socialism which have been advocated,
but I for one accept his statement because I do not yet see signs
that the Administration wants to nationalize industry. Also I re-
call that even the National Socialists in Germany found it much
more efficient to control industry than to try to own and operate
it. With that exception, however, I do not see why many good
socialists should disagree overmuch with the direction and pace
of the Great Society now under way. It is my view --- and my Party's
view - that these trends are baleful for business and baleful for
America's system of free enterprise and individual responsibility.
Perhaps at this meeting this year your Administration spokesmen can
be induced to project these political and economic trends for you
over the decade ahead. If they do, and if their anticipations are
- 15 -
more accurately and candidly stated than those presented to you
a year ago, I fear not for November 8, but I do fear for the
future of the President's Club.
Frim Bryse Aarlaw
Tolitical?
First Draft
10/17/66
Gerald R. Ford
MR. CHAIRMAN, DISTINGUISHED MEMBERS OF THE BUSINESS COUNCIL,
COLLEAGUES IN GOVERNMENT, AND GENTLEMEN --
toopolitical?
In recent weeks the Lone Star chief of the Eastern Establish-
ment has been ranging marginal areas in this country and, now, in
the South Pacific, shoring up his consensus.
On the domestic hustings a couple of weeks ago this zeal for
unity led him to suggest that the political minority in the United
States acts and speaks from fear.
That statement may have been adroit, but was factually nuts.
We have the proof right here.
The very fact that the House Minority Leader has dared into
this place, before this eminent and astute audience, along with Tom
Curtis of Missouri, demonstrates that we Republicans are bold, we are
venturesome, one could even say we are foolhardy.
But I do prize your invitation, and I thank you for it. And
because it is at once honor, challenge and opportunity, I have thought
long and hard about an appropriate message.
Not that good speech topics are scarce these days.
For instance, my first impulse was to explore with you the poli-
tical inflation and questionable credit that accompany the escalating
dues to the President's Club.
But I was warned against this. I was told it might spark a
FORD
Boosters' Club backlash. I avoid the topic, therefore, for one
GERALL
LIBRARY
- 2 -
compelling reason: For both parties, in this group especially,
it could lead to disaster - contributory negligence.
Next I thought of appraising the public health and safety.
But I discovered this would alarm both tobacco users and Ralph
Nader. After all this is Virginia, and I am from Michigan. So it
seemed prudent to find another theme.
Then I considered air and water pollution.
But no --- coming from Capitol Hill, I cannot in good conscience
raise the first. And this spot, famed for mineral waters, is hardly
the place to stress the latter.
so, gentlemen, in some desperation I then retreated to the
politicians standby - Truth. I got into this project with enthusiasm,
happily examining the credibility gap of course, in a non-partisan
way. Then various of my friends on the Commerce and Banking and
Currency Committees said even Truth has gone off limits, because of
business concern over "Truth in Packaging" and "Truth in Lending." I
believe your distinguished Chairman, among others I see here, experienced
recent discomforts in this area.
It is evident, therefore, that the noncontroversial is too con-
tentious, and the unpolitical much too partisan, to be suitable here.
I have turned, therefore, to a topic certain to be bland and
inoffensive a reminder of what your Council was advised here 12
months ago by Administration leaders, contrasting this with what has
actually happened. Doing so may offer us perspective on what they are
- 3 -
advising now.
So let me refresh your memory.
Last year almost every one of your government speakers
rhapsodized over "the previous fifty-six months of ntinued ex-
pansion." But strangely, not one thought to mention, first, that
during all this period the use of credit had to be increased at a
rate much more rapid than the rate of expansion of income or, second,
that the liquidity of corporations and commercial banks had been re-
duced year by year. It is interesting - and not a little worrisome
-- that these basics escaped the attention of such expert observers.
One wonders if our present concerns over tight money, high interest
rates and rising prices paid by consumers could possibly relate in
any way to these underlying considerationsso curiously unmentioned
a year ago.
Last year Economic Council Chairman Gardner Ackley was quoted
as saying, "I am optimistic about the continued stability of costs
and prices." He also said, "Government has the weapons and the will
to maintain expansion within non-inflationary bounds." Some of you
may also recall that he was reported to hold out hope for further tax
cuts for low income families in this year of 1966.
These views of the President's top economic advisor, I must say
in fairness, did include a reservation. He acknowledged the possi-
bility that outlays required to carry forward the part-time Great
Society program -- the Viet Nam war -- might over-heat the economy.
- 4 -
And a week previously Secretary Fowler had said that, if the pros-
pective Viet Nam costs were $10 billion or more, he would be thinking
about a tax increase. But lest anyone be too disturbed, the Secre-
tary quickly went on to indicate that he was not really contemplating
such an increase after all.
Now, in reviewing these remarks, isn't it puszling -- certainly
Ifind it so -- that the President's top economic advisor and even the
Secretary of the Treasury were apparently so much in the dark on pros-
pective military expenditures and what to do about them. We at the
Capitol, I may say, had strong indications as to those figures and
publicly voiced them time and time again. One hesitates to conclude
that none of the Administration civilian leaders understood what was
being planned or what was to be required. The alternative conclusion
-- that they knew but didn't say - is even worse.
It is true that Mr. Fowler was exercised over deependng troubles
in the international monetary mechanism. You recall what he said
here: "Despite its many and great virtues and accomplishments, our
international monetary system stands at a crossroads. Since 1958,
the United States' balance of payments deficits have supplied the
principal source of additional liquidity to the world monetary system.
About three-quarters of the new official reserves of other nations
have been built out of these deficits, and large foreign private hold-
ings of dollars have added to the potential strain on United States'
reserves."
- 5 -
Actually, quite a few financial experts have grown apprehensive
over the kind of liquidity mentioned by Secretary Fowler. Some of
them advise me that the liquidity which we have produced in the
world monetary system has been and still is -- one of the principal
elements in world price inflation. It is well known that both friend-
ly and not-so-friendly central banks have drawn upon our gold reserves
to protect themselves against the consequences of the political finance
which we employ.
Yet, even in this area Secretary Fowler was not all gloom and
doom. Indeed, he radiated optimism saying: "We are now well along
in the process of ending our deficits and bringing our international
payments into sustainable equilibrium. The President, the Congress
and informed financial authorities around the world all/are agreed
that the United States must put its international accounts in order,
and keep them so
......
to arrest drains of the United States'
reserves that have flowed from some portion of these deficits being
paid off in United States' gold. That erosion cannot go on indefi-
nitely. It must be, and is being, stopped now."
How good it was to have those reassuring words last year. Now,
however, let's take a look. The Foreign Trade Council estimates the
deficit in the United States international accounts as approximating
$2.5 billion in 1966. This compares to $1.3 billion reported on an
Official Transactions Basis in 1965. Has something gone wrong with
- 6 -
our firm pledge to put our international accounts in order? What
happened to the ending of the drain of gold which, as the Secretary
said twelve months ago, cannot go on indefinitely. As a matter of
fact, do we find here a parallel with the touted fifty-six months
of continued expansion, - an expansion,-however, financed by an
unsustainable reduction in corporation and bank liquidity and a simi-
larly unsustainable increase in credit use greatly exceeding the in-
crease in income payments? It was good to have such categorical
reassurances a year ago. Today one wonders why and how they could
have been made. One wonders if the nation is getting not commitments,
not candid predictions, but perhaps hopeful expressions related not
necessarily to fact but to hoped-for public attitudes.
Events do seem to have borne out Secretary Fowler's statements
in one important respect. I refer to the opinion he stated here that:
"Our international monetary system stands at a crossroads."
Now, one could agree with that opinion a year ago. We could all
agree with the same statement if repeated today. This raises a couple
of interesting questions. What new road is to be traveled if and when
the crossroad is crossed? Also, just where has the crossroad gone?
Apparently we have been immobilized there for 52 weeks.
Last year Vice President Humphrey also shared some helpful ideas
with your Council. He said here, "We see no present likelihood that
expenditures are rising enough to bring the threat of inflation. If
LIBRARY
- 7 -
they did the President of the United States would take appropriate
fiscal and monetary action and budgetary action to throttle that in-
flation. I can assure you of that tonight. Have no doubt about it."
After these happy thoughts, the Vice President discoursed for
a time on the wealth of the nation and the size of the gross national
product. You may recall his conci. usion: "Not only will we be able
to press ahead, therefore with the necessary defense, but we will
also be able to move ahead prudently with some of the programs that
your Government and this Administration have sponsored for the Great
Society."
Well, we had to wait a few months for the President's budget
Good
before we found out what this reassurance meant. We found that the
Great Society programs, immense as they already were, were being ex-
panded. We found that tax collections would be accelerated. We dis-
the heavy
de-fused
covered that/expenditures reported would be politically defused by
refinancing conducted by Federal agencies. And we were surprised to
note that the war in Viet Nam would end precisely and completely on
June 30, 1967, if the Fedeml budget could be accepted as a guide.
Taken all together, we made a fascinating discovery. Here in
the United States were were adopting the ancient practice of the Chinese
war lords who required that taxes be paid five years in advance. This
is a fiscal delight for people in government whose aspirations exceed
current income, but it has one weakness. It develops a vacuum in tax
GERALD
LIBRARY
- 8 -
receipts later on unless the tax rates are increased.
)
We also found that many businessmen had not read the Vice Presi-
dent's reassurances as perhaps he intended, hence they were unprepared
for accelerated tax payments. These unfortunates were forced to
borrow the required funds. The result was in full harmony with the
economic axiom. When bank and corporate liquidity has been brought
to the lowest levels in decades, and when businessmen are thus obliged
to borrow to pay their taxes, interest rates are bound to go up.
As a matter of fact, as one reviews these official statements of
a year ago, it becomes very difficult to see how they provided your
Council much useful knowledge about the probable conduct of public
affairs or the economic developments to be expected as a consequence.
Nevertheless, after your meeting the newspapers reported that you were
optimistic. If this viewpoint was fairly reported I presume you were
optimistic because you believed that aggregate income would go up and
that the sales of many businesses would expand. I suspect you also
exercised your prerogative of drawing your own conclusions from what
you had been told by people in high places and, possibly more speci-
fically, from what you were not told.
Now, just a word here to re-position reposition ourselves in the situation
that prevailed 12 months ago.
for various reasons,
A year ago,/most businessmen were deciding to raise their invest-
ment in plant and equipment. Government policy was obviously to spend
LIBRAR,
- 9 -
more, probably considerably more than the amounts officially stated,
so a lusty demand for goods seemed assured. Industry was operating
at boom levels. It was a time of substantially full employment. So
businessmen by and large continued to pour more spending into plant and
equipment. It is this combination of circumstance that brought invest-
ment in plant and equipment to levels which I understand a number of
reputable economists consider unsustainable.
It was in the same period, as you know, that labor leaders re-
cognized a good thing when they saw it. With industry booming, with
corporate profit margins at the most satisfactory level in years, and
with deeply obligated officials in charge in Washington, Labor saw
little reason not to press for sharp wage increases. Since then,
guidelines or no guidelines, wages have been increased beyond the
rate which can be offset by increased productivity. Moreover, we
should note here our habit of dealing in national aggregates. This
obscures an important fact -- that changes in the rate of productivity
in different industries and different businesses are quite different.
The fact is, these national aggregates mean little unless the wage and
productivity rates of specific businesses and products have been deter-
mined in the operation of a real market economy in which no participant
is permitted to use force. To some extent this truth was recognized
in the President's Economic Message of January, 1962, when the concept
of wage-price guidelines was first presented. Since then, however, re-
servations about the use of guidelines have been more or less forgotten,
- 10 -
and now the guidelines themselves have become virtually ignored.
Well then -- with government spending skyrocketing, with larger
investments in plant and equipment and with larger wage demands, in-
come payments and consumer expenditures of course have gone up. Well
and good, except for one thing - despite the pledges made here a
year ago, the resulting economic expansion has been accompanied by
inflation. This misfortune has been indulged to the point that it has
reduced not only the value of the higher wages, but it has also cut
deeply into the value of all savings accumulated during the long past
by literally millions of hard-working, self-reliant and productive
Americans. I will simply say, it has been a cruel thing for Mr.
Average American that the Administration has done.
I am sure it is generally appreciated that the Administration
has forced the Federal Reserve to bear the brunt of responsiblility
for restricting inflationary expansion. Allthe while it has increased
expenditures while imploring others to exercise restraint.
I suppose that in a previous time this might have worked better.
But, in the present, it seems increasingly evident that high and pro-
gressive tax rates have reduced the effectiveness of monetary policy.
The economic reformers who advocated the use of high and progressive
tax rates to redistribute income probably never foresaw that the tax
procedure, which they proposed, would reduce the cost of borrowed
money to those who pay high tax rates on current income. On the other
- 11 - -
hand, if interests costs are not deductible in computing taxable
income, it is at least doubtful that a high volume of interest,
income and employment can be maintained. I am sure I don't need
to spell this out in detail. But I do invite your attention to this
fact -- efforts to reform the distribution of income by use of tax
policy seem to have impaired the effectiveness of monetary policy
as a means of restraining inflationary expansion.
Actually, it is a good question whether fiscal policy, so
esteemed by many businessmen, bankers and economists, can really
produce results we want and need in the present situation. A year
ago many people called for higher tax rates tp provide funds required
to finance the war. Secretary Fowler told you here, as noted earlier,
that he would propose higher taxes if he thought the prospective cost
of Viet Nam would be $10 billion or more.
I must say, however, that the current widespread belief in the
effectiveness of fiscal policy, as a means of restricting inflation,
seems somewhat naive. Surely, if we raise taxes simply to get into
government hands funds which are then to be spent, the result can only
be to transfer income or funds from the taxpayers to other recipients
of income. This kind of fiscal policy serves only to pour tax water
from one jug into another, while Uncle sips off his portion in admi-
nistrative cost.
Are we to believe that an inflationary spiral can be brought
under control by such means? It would seem that the fiscal policy
ORD
GERADO
LIBRARY
- 12 -
we need to restrict inflationary expansion would be one which assures
a surplus large enough to offset the effects of deficit financing in
the non-government sectors of the economy. But, even if we should
try this restrictive fiscal policy -- which the present Administra-
tion, I suspect, has neither the desire nor the political courage to
apply we would have problems.
In the first place, businessmen will borrow money to finance
accelerated tax payments. It will be interesting, by the way, to see
how much will be borrowed for this purpose next Spring. Second, I am
sure it is no news to you and certainly not to your accountants, that
taxes on income are a cost. It follows that your prices will go up
as costs go up and as it becomes possible to raise prices. Those who
call for a tax increase, therefore, ought to at least own up to the
fact that prices will be thereby forced up for consumers if the goods
they want are to be available.
I increasingly believe that our basic trouble is this: we insist
on thinking of how monetary and fiscal policies could have been used
in the kind of economy which existed in the past. Such an economy
no longer exists. It has been reformed or restructured, no doubt with
good intentions, to the point where now our bright and shiny fiscal
and monetary procedures produce effects quite different from what we
expect. If that statement sounds extreme, I suggest a rereading of
the official pronouncements of a year ago at this meeting.
LIBRARY
- 13 -
In a few more weeks -- perhaps soon after November 8, -- you
may hear a good deal more about the character and dollar cost of this
bloody war. Candor may come easier then for those charged with ad-
ministration. With these matters out in the open, I think you may
expect an Administration whimper for more tax revenue. Even if our
new-found friends -- our Communist enemies -- decide to de-escalate
the war in return for the benance recently proferred by the President,
trade Gonanzas
large scale spending for military operations will not suddenly stop
on June 30, 1967. These costs will stay high for an appreciable
period, come what may. Even an undeclared and computerized war, dir-
ected by political rather than military leaders, is costly from the
viewpoint of the Bureau of the Budget -- as well as the viewpoints of
the men doing the fighting and dying, their families and those persons
who are conversant with these matters.
so, gentlemen, I have to suggest caution, though I should much
prefer to emulate those who see only sunlight and paradise ahead. I
also suggest prudence in again adopting the cheery expectations which
you are reported to have developed a year ago on the basis of what
you were told here.
The period of comfortable inflation with higher sales and profits
seems to be ending. It has already terminated for some. Possibly you
will wish to take a good hard look at the situation in which you will
likely find yourselves in a few more weeks when the government may feel
071139
LIBRARY
- 14 -
a bit freer about leveling with the folks at home. As usual, we
will hear that the gross national product will be larger. But nowa-
days the gross national product goes up even during periods of re-
cession. I trust, for this reason, that you will not let these
large amorphous numbers or statements like those uttered here a
year ago give too rosy a hue to your views.
You may remember another point made here by Vice President
Humphrey last year. He said we are not "changing to methods of
socialism."
Now, that was ever so comforting. I do not profess to under-
stand all of the varieties of socialism which have been advocated,
but I for one accept his statement because I do not yet see signs
that the Administration wants to nationalize industry. Also I re-
call that even the National Socialists in Germany found it much
more efficient to control industry than to try to own and operate
it. with that exception, however, I do not see why many good
socialists should disagree overmuch with the direction and pace
of the Great Society now under way. It is my view - and my Party's
view - that these trends are baleful for business and baleful for
America's system of free enterprise and individual responsibility.
Perhaps at this meeting this year your Administration spokesmen can
be induced to project these political and economic trends for you
over the decade ahead. If they do, and if their anticipations are
LIBRARY
- 15 -
more accurately and candidly stated than those presented to you
a year ago, I fear not for November 8, but I do fear for the
future of the President's Club.
FORD THE LIB
W. B. MURPHY
WILLIAM M. BATTEN
Chairman
Vice Chairman
THE BUSINESS COUNCIL
JOHN W. BURKE, JR.
NEIL McELROY
Executive Secretary
888 SEVENTEENTH STREET, N.W.
Vice Chairman
WASHINGTON, D.C. 20006
ALBERT L. NICKERSON
Vice Chairman
Telephone
Area Code 202
STUART T. SAUNDERS
298-7650
Vice Chairman
ACTIVE MEMBERS
J. PAUL AUSTIN
HENRY FORD II
EDGAR F. KAISER
ROBERT S. OELMAN
S. D. BECHTEL, JR.
FRED C. FOY
F. R. KAPPEL
DAVID PACKARD
EUGENE N. BEESLEY
G. KEITH FUNSTON
J. WARD KEENER
T. F. PATTON
ROGER M. BLOUGH
A. H. GALLOWAY
JOSEPH L. LANIER
CHARLES H. PERCY
FRED J. BORCH
THEODORE R. GAMBLE
RALPH LAZARUS
R. S. REYNOLDS, JR.
HARLLEE BRANCH, JR.
THOMAS S. GATES, JR.
GEORGE H. LOVE
L .B. SMITH
CARTER L. BURGESS
CARL J. GILBERT
BIRNY MASON, JR.
FRANK STANTON
DONALD C. BURNHAM
ELISHA GRAY II
S. M. McASHAN, JR.
ROBERT T. STEVENS
LOUIS W. CABOT
COURTLANDT S. GROSS
L. F. McCOLLUM
GARDINER SYMONDS
WALKER L. CISLER
PATRICK E. HAGGERTY
NEIL McELROY
A. THOMAS TAYLOR
HOWARD L. CLARK
R. V. HANSBERGER
IRWIN MILLER
CHARLES B. THORNTON
BERT S. CROSS
MILTON P. HIGGINS
FRANK R. MILLIKEN
JUAN T. TRIPPE
JOHN H. DANIELS
HERBERT HOOVER, JR.
ROGER MILLIKEN
JOHN C. VIRDEN
PAUL L. DAVIES
GILBERT W. HUMPHREY
W. B. MURPHY
THOMAS J. WATSON, JR.
RUSSELL DeYOUNG
ROBERT S. INGERSOLL
CHARLES F. MYERS, JR.
JOHN HAY WHITNEY
FREDERIC G. DONNER
RALPH B. JOHNSON
ALBERT L. NICKERSON
HENRY S. WINGATE
October 3, 1966
Memorandum for All Council Members, Guests and Their Wives
Attending the October 1966 Meeting at
The Homestead, Hot Springs, Virginia
I.
Enclosed are:
a. Schedule of social events.
b. First names and home addresses of Council members, as
of September 1966.
C. List of new Council members, 1963-1966.
d. Tentative agenda for business sessions.
e. Notice on Ladies' golf.
f. List of expected Council guests, with brief biographies.
II.
a. The Tower Lounge, opposite the Tower elevator, will be set
aside for the exclusive use of Council members, Council guests and their
wives from 8:00 p.m. Thursday until 8:00 p.m. Sunday.
The Business Council October 1966 Meeting
Page 2
The Homestead, Hot Springs, Virginia
b. Due to space limitations, members and their wives are re-
quested not to invite non-Council guests into the Tower Lounge or to the
receptions before dinner.
C. In order to eliminate embarrassment to anyone, it is requested
that attendance at the Friday and Saturday night dinners be limited to Council
members and official Council guests.
d. As in the past, it is requested that Council members refrain from
holding private social functions at times which conflict with scheduled Council
events, particularly cocktail parties before the Council dinners.
e. Dress will be optional on Thursday evening, black tie on Friday
and Saturday evenings.
f. With the exception of the Head Table, seating for the Friday and
Saturday night dinners will be by drawings from the bowls located between the
Georgian and Commonwealth Rooms.
g. Gratuities in the Tower Lounge and for service at the scheduled
receptions and dinners will be taken care of by the Council. Service in the
main dining room, the Casino, in rooms and in getting to and from the airport
should be taken care of by the individual.
h. With reference to the Men's Golf Tournament on Saturday at The
Homestead Course:
(1) The entry fee of $15.00 (for prizes) should be paid to
the Club Pro before teeing off.
(2) The starter will assist those members and guests so
desiring to make up foursomes.
(3) For the personal pleasure and convenience of the parti-
cipants, it is important that they arrange for starting time
with the Golf Shop well in advance.
i. You will notice from the enclosed announcement on ladies' golf
that Mrs. William Allen has agreed to serve as Chairman and to help out with
any arrangements that may be necessary.
j. Again, a round-robin, doubles tennis tournament will be held,
to begin at 1:30 p.m. on Friday afternoon on the Casino Courts. It is urged
The Business Council October 1966 Meeting
The Homestead, Hot Springs, Virginia
Page 3
that all those wishing to play please sign up in the Writing Room, as soon
after arrival as possible, where appropriate entry slips will be provided.
Mr. Preston Hotchkis has kindly agreed to act as Chairman for this event
and will be glad to assist the players in making arrangements. A reason-
able entry fee will be established.
k. IT WOULD BE GREATLY APPRECIATED IF MEMBERS WOULD
ADVISE EITHER THE EXECUTIVE SECRETARY OR MRS. BURKE OF ANY LAST
MINUTE CHANGES IN DINNER PLANS OR DEPARTURE TIMES. MESSAGES MAY
BE LEFT AT THE DESK OR AT THE COUNCIL STAFF HEADQUARTERS IN THE
WRITING ROOM, JUST OFF THE TOWER LOUNGE.
III.
Piedmont Airlines has commercial air service direct to Ingalls Field,
Hot Springs, Virginia. The following schedule will be in effect at the time of
the October meeting.
All times given are Eastern Daylight Time
Flight 411 - Daily
Flight 790 - Daily Ex. Sunday
Lv Washington
1:25 p.m.
Lv Roanoke
7:20 a.m.
Ar Hot Springs
2:47 p.m.
Ar Hot Springs
7:43 a.m.
Lv Hot Springs
2:52 p.m.
Lv Hot Springs
7:48 a.m.
Ar Roanoke
3:14 p.m.
Ar Washington
9:06 a.m.
Flight 791 - Daily
Flight 902 - Sundays Only
Lv Washington
7:15 p.m.
Lv Roanoke
10:45 a.m.
Ar Hot Springs
8:20 p.m.
Ar Hot Springs
11:08 a.m.
Lv Hot Springs
8:25 p.m.
Lv Hot Springs
11:13 a.m.
Ar Roanoke
8:47 p.m.
Ar Washington
12:31 p.m.
Flight 702 - Daily
Lv Roanoke
2:10 p.m.
Ar Hot Springs
2:33 p.m.
Lv Hot Springs
2:38 p.m.
Ar Washington
3:56 p.m.
(Note: All Washington departures and arrivals at National Airport)
IV.
The Homestead has recently changed its telephone number and can
now be reached at the main switchboard by calling Code 703, 839-5500.
V.
The Homestead is on Eastern Daylight Time and all scheduled and
programs for The Business Council meeting are printed in EDT.
The Business Council October 1966 Meeting
The Homestead, Hot Springs, Virginia
Page 4
VI.
Chairman and Mrs. Murphy are very hopeful that they can count
on the members to arrange their schedules, insofar as possible, to attend
the entire program at The Homestead.
John W. Burke, Jr.
Executive Secretary
Enclosures
THE BUSINESS COUNCIL
The Homestead
October 20th-23rd, 1966
Hot Springs, Virginia
EASTERN DAYLIGHT TIME
SOCIAL EVENTS
Thursday, October 20th
6:45 p.m.
Chairman's Reception - Dress Optional
Empire Room
(Main Dining Room Open for Dinner)
8:00 p.m.
Tower Lounge Open for Council Members and Council Guests
Friday, October 21st
10:30 a.m.
Ladies' Coffee Hour
Tower Lounge
12:30 p.m.
Buffet
Tower Lounge
(Main Dining Room and Casino Open for Luncheon)
1:30 p.m.
Tennis Tournament
Casino Courts
6:45 p.m.
Reception and Dinner - Black Tie
Commonwealth Room
Speaker -- Sir Robert G. Menzies, K.T.
Former Prime Minister of Australia
Saturday, October 22nd
10:30 a.m.
Ladies' Coffee Hour
Tower Lounge
12:30 p.m.
Buffet
Tower Lounge
(Main Dining Room and Casino Open for Luncheon)
1:30 p.m.
Tennis Tournament - Continued
Casino Courts
1:30 p.m.
Men's Golf Tournament
The Homestead Course
6:45 p.m.
Reception and Dinner - Black Tie
Commonwealth Room
Speaker -- The Honorable Gerald R. Ford
Minority Leader of the House of Representatives
Sunday, October 23rd
Tower Lounge Open - No Formal Council Activities
THE BUSINESS COUNCIL
First Names and Home Addresses - 1966
Mr. and Mrs. Winthrop W. Aldrich
Mr. and Mrs. Eugene N. Beesley
(Winthrop and Harriet)
(Gene and Marian)
960 Fifth Avenue
6099 Sunset Lane
New York, New York 10021
Indianapolis, Indiana 46208
Mr. Henry C. Alexander
Mr. and Mrs. S. Clark Beise
(Henry)
(Clark and Virginia)
3 East 71st Street
420 El Cerrito Avenue
New York, New York 10021
Hillsborough, California 94010
Mr. and Mrs. William M. Allen
Mr. and Mrs. John D. Biggers
(Bill and Mary Ellen - "Mef")
(Jack and Frances)
The Highlands
112 Rockledge Circle
Seattle, Washington 98177
Perrysburg, Ohio 43551
Mr. and Mrs. S. C. Allyn
Mr. and Mrs. Roger M. Blough
(Chick and Helen)
(Roger and Helen)
2021 Ridgeway Road
580 Park Avenue
Dayton, Ohio 45419
New York, New York 10021
Mr. and Mrs. Robert B. Anderson
Mr. and Mrs. Harold Boeschenstein
(Bob and Ollie)
(Beck and Bea)
2 East 67th Street
28449 East River Road
New York, New York 10021
Perrysburg, Ohio 43551
Mr. and Mrs. J. Paul Austin
Mr. and Mrs. Fred Bohen
(Paul and Jeane)
(Fred and Mid)
711 Broadland Road, N. W.
2801 Fleur Drive
Atlanta, Georgia 30305
Des Moines, Iowa 50321
Mr. and Mrs. William M. Batten
Mr. and Mrs. Fred J. Borch
(Bill and Kathryn)
(Fred and Martha)
235 Trumbull Road
190 East 72nd Street
Manhasset, Long Island, New York
New York, New York 10021
Mr. and Mrs. S. D. Bechtel
Mr. and Mrs. Harllee Branch, Jr.
(Steve and Laura)
(Harllee and Kitty)
244 Lakeside Drive
3106 Nancy Creek Road, N. W.
Oakland, California 94612
Atlanta, Georgia 30327
Mr. and Mrs. S. D. Bechtel, Jr.
Mr. and Mrs. Ernest R. Breech
(Steve and Betty)
(Ernie and Thelma)
26 Sea View Avenue
1268 West Long Lake Road
Piedmont, California
Bloomfield Hills, Michigan
First Names and Home Addresses
Page 2
Mr. and Mrs. Mason Britton
Mr. and Mrs. Howard L. Clark
(Mason and Anne)
(Howard and Jean)
West Southport, Maine
416 Erskine Road
Stamford, Connecticut
Mr. and Mrs. George R. Brown
(George and Alice)
General and Mrs. Lucius D. Clay
3363 Inwood Drive
(Lucius and Marjorie)
Houston, Texas 77019
200 East 66th Street
New York, New York 10021
Mr. and Mrs. Prentiss M. Brown
(Prentiss and Marion)
Mr. and Mrs. John L. Collyer
11 Prospect
(John and Georgia)
St. Ignace, Michigan 49781
29 Putnam Road
Akron, Ohio 44313
Mr. and Mrs. Carter L. Burgess
(Carter and May Gardner)
Honorable and Mrs. John T. Connor
25 Beech Tree Lane
(Jack and Mary)
Pelham Manor, New York 10803
5017 Loughboro Road, N.W.
Washington, D.C. 20016
Mr. and Mrs. Donald C. Burnham
615 Osage Road, Mt. Lebanon
Mr. and Mrs. Ralph J. Cordiner
Pittsburgh, Pennsylvania 15216
(Ralph and Gwen)
155 Bayview Drive, Belleair
Mr. and Mrs. Louis W. Cabot
Clearwater, Florida 33516
(Louis and Mary Lou)
97 Larch Row
Mr. and Mrs. John E. Corette
Wenham, Massachusetts 01984
(Jack and Elsie)
1245 W. Platinum Street
Mr. and Mrs. Paul C. Cabot
Butte, Montana 59701
(Paul and Virginia)
653 Chestnut Street
Mr. and Mrs. John Cowles
Needham, Massachusetts 02192
(John and Betty)
2318 Park Avenue
Mr. and Mrs. James V. Carmichael
Minneapolis, Minnesota
(Jim and Frances)
1031 Cherokee Street
Mr. and Mrs. W. Howard Cox
Marietta, Georgia 30060
(Howard and Marianne)
8875 Old Indian Hill Road
Mr. and Mrs. C. S. Ching
Cincinnati, Ohio 45243
(Cy and Vergie)
2540 Massachusetts Avenue, N.W.
Mr. and Mrs. Bert S. Cross
Washington, D. C. 20008
(Bert and Bernice)
45 Evergreen Road
Mr. and Mrs. Walker L. Cisler
Pine Tree Hills
(Walker and Gertrude)
St. Paul, Minnesota 55115
1071 Devonshire Road
Grosse Pointe, Michigan 48230
First Names and Home Addresses
Page 3
Mr. and Mrs. John H. Daniels
Mr. and Mrs. Frederic G. Donner
(John and Martha)
(Fred and Eileen)
1385 E. County Road
34 Barkers Point Road
White Bear Lake, Minnesota 55110
Sands Point, Port Washington
Long Island, New York 11050
Mr. and Mrs. Donald K. David
(Don and Beth)
General and Mrs. Dwight D. Eisenhower
The Carlyle
(Ike and Mamie)
35 East 76th Street
Gettysburg, Pennsylvania 17325
New York, New York 10021
Colonel and Mrs. Robert G. Elbert
Mr. and Mrs. Paul L. Davies
(Bob and Marion)
(Paul and Faith)
27 Indian Creek Village
1598 University Avenue
Miami Beach, Florida 33154
San Jose, California 95126
Dr. and Mrs. W. Y. Elliott
Mr. and Mrs. Frank R. Denton
(Bill and Louise)
(Frank and Connie)
Hidden Valley Farm
Tall Trees
Haywood, Virginia
Star Route South
Ligonier, Pennsylvania
Mr. and Mrs. Ralph E. Flanders
(Ralph and Helen)
Mr. and Mrs. R. R. Deupree
Smiley Manse
(Red and Emily)
P. O. Box 479
6305 Park Road
Springfield, Vermont 05156
Cincinnati, Ohio 45243
Mr. Robert V. Fleming
Mr. and Mrs. Russell DeYoung
(Bob)
(Russ and Lois)
2200 Wyoming Avenue, N.W.
910 Eaton Avenue
Washington, D.C. 20008
Akron, Ohio 44303
Mr. and Mrs. Marion B. Folsom
Mr. and Mrs. Charles D. Dickey
(Marion and Mary)
(Charley and Catherine)
106 Oak Lane
1801 East Willow Grove Avenue
Rochester, New York 14610
Chestnut Hill
Philadelphia, Pennsylvania 19118
Mr. and Mrs. Henry Ford II
(Henry and Cristina)
Mr. and Mrs. C. Douglas Dillon
457 Lakeshore Drive
(Doug and Phyllis)
Grosse Pointe Farms, Michigan 48236
960 Fifth Avenue
New York, New York
Honorable and Mrs. William C. Foster
(Bill and Beulah)
Mr. and Mrs. Alphonsus J. Donahue
3304 R Street, N. W.
(Al and Virginia)
Washington, D.C. 20007
336 Ocean Drive West
Stamford, Connecticut
First Names and Home Addresses
Page 4
Mr. and Mrs. Fred C. Foy
Mr. and Mrs. Elisha Gray II
(Fred and Elizabeth)
(Bud and Helen)
4625 Fifth Avenue
400 Nickerson Avenue
Pittsburgh, Pennsylvania 15213
Benton Harbor, Michigan 49023
Mr. and Mrs. Clarence Francis
Mr. and Mrs. Crawford H. Greenewalt
(Clare and Grace)
(Crawford and Margaretta)
9 Westway
Greenville
Bronxville, New York
Wilmington, Delaware 19807
General and Mrs. John M. Franklin
Mr. and Mrs. Courtlandt S. Gross
(Jack and Emily)
(Courtlandt and Alix)
680 Madison Avenue
3131 Antelo Road
New York, New York 10021
Los Angeles, California 90024
Mr. and Mrs. H. B. Friele
General and Mrs. Alfred M. Gruenther
(Haakon and Mildred)
(Al and Grace)
9921 S. E. 16th Street
4101 Cathedral Avenue, N.W.
Bellevue, Washington 98004
Washington, D.C. 20016
Mr. and Mrs. G. Keith Funston
Mr. and Mrs. F. G. Gurley
(Keith and Betty)
(Fred and Ruth)
Vineyard Lane
860 Lake Shore Drive
Greenwich, Connecticut 06832
Chicago, Illinois 60611
Mr. and Mrs. Alexander H. Galloway
Mr. and Mrs. Patrick E. Haggerty
(Alex and Martha)
(Pat and Beatrice)
1048 Arbor Road
5455 Northbrook Drive
Winston-Salem, North Carolina 27104
Dallas, Texas 75220
Mr. and Mrs. Theodore R. Gamble
Mr. and Mrs. Joseph B. Hall
(Ted and Rispah)
(Joe and Mildred)
33 Upper Ladue Road
3 Grandin Terrace
St. Louis, Missouri 63124
Cincinnati, Ohio 45208
Mr. and Mrs. Thomas S. Gates, Jr.
Mr. and Mrs. R. V. Hansberger
(Tom and Anne)
(Bob and Klara)
1 East 66th Street
1305 Harrison Boulevard
New York, New York 10021
Boise, Idaho 83701
Mr. and Mrs. Frederick V. Geier
Honorable and Mrs. W. Averell Harriman
(Fred and Amey)
(Averell and Marie)
8880 Old Indian Hill Road
3038 N Street, N.W.
Cincinnati, Ohio 45243
Washington, D.C. 20007
Mr. and Mrs. Carl J. Gilbert
Mr. and Mrs. William A. Hewitt
(Carl and Helen)
(Bill and Tish)
Strawberry Hill Street
38th Street and Blackhawk Road
Dover, Massachusetts 02023
Rock Island, Illinois 61201
First Names and Home Addresses
Page 5
Mr. and Mrs. Milton P. Higgins
Mr. and Mrs. Robert S. Ingersoll
(Milt and Alice)
(Bob and Ellie)
757 Salisbury Street
10 Indian Hill Road
Worcester, Massachusetts 01609
Winnetka, Illinois 60093
Mr. and Mrs. Paul G. Hoffman
Mr. and Mrs. Alfred W. Jones
(Paul and Anna)
(Bill and Kit)
8 Sutton Square
Runnymede Light
New York, New York 10022
Sea Island, Georgia 31561
Mr. and Mrs. Herbert Hoover, Jr.
Mr. and Mrs. Harrison Jones
(Herb and Peg)
(Harrison and Kathryn)
890 S. San Rafael Avenue
660 West Paces Ferry Road, N. W.
Pasadena, California 91105
Atlanta, Georgia 30327
Mr. and Mrs. Preston Hotchkis
Mr. and Mrs. Devereux C. Josephs
(Pres and Kit)
(Dev and Peggy)
1415 Circle Drive
200 East 66th Street
San Marino, California 91108
New York, New York 10021
Mr. and Mrs. Amory Houghton
Mr. and Mrs. Edgar F. Kaiser
(Am and Laura)
(Edgar and Sue)
The Knoll
3100 Andreasen Drive
Corning, New York 14830
Lafayette, California
Mr. and Mrs. Alvin H. Howard
Mr. and Mrs. Ernest Kanzler
(Bud and Nell)
(Ernie and Rosemarie)
1625 Joseph Street
241 Lakeshore Road
New Orleans, Louisiana 70115
Grosse Pointe Farms, Michigan 48236
Mr. and Mrs. A. W. Hughes
Mr. and Mrs. F. R. Kappel
(Al and Gertrude)
(Fred and Ruth)
2 Highland Road
17 Hewitt Avenue
Larchmont, New York
Bronxville, New York 10708
Mr. and Mrs. George M. Humphrey
Mr. and Mrs. J. Ward Keener
(George and Pam)
(Ward and Marian)
Holiday Hill Farm
265 Hampshire Road
Mentor, Ohio 44060
Akron, Ohio 44313
Mr. and Mrs. Gilbert W. Humphrey
Mr. and Mrs. John R. Kimberly
(Bud and Louise)
(Jack and Elizabeth - "Esk")
Hunting Hill, River Road
Box 512
Chagrin Falls, Ohio 44022
Neenah, Wisconsin 54957
Mr. and Mrs. Austin S. Igleheart
Mr. and Mrs Justin Kingson
(Austin and Suzanne)
(Justin and Nedra)
Round Hill Road
1050 Park Avenue
Greenwich, Connecticut 06833
New York, New York
First Names and Home Addresses
Page 6
Admiral Emory Scott Land
Mr. and Mrs. George P. MacNichol, Jr.
(Jerry)
(June and Emma)
Sheraton-Park Hotel, Apt. 308-K
30217 East River Road
Washington, D.C. 20008
Perrysburg, Ohio 43551
Mr. and Mrs. E. H. Lane
Mr. and Mrs. Deane W. Malott
(Ed and Helen)
(Deane and Eleanor)
Viewpoint
205 Oak Hill Road
300 Myrtle Lane
Ithaca, New York 14850
Altavista, Virginia 24517
Mr. and Mrs. Birny Mason, Jr.
Mr. and Mrs. Joseph L. Lanier
(Birny and Betty)
(Joe and Lura)
12 Pryer Lane
Box 270
Larchmont, New York 10538
West Point, Georgia 31833
Mr. and Mrs. J. W. McAfee
Mr. and Mrs. Fred Lazarus, Jr.
(Wes and Alice)
(Fred and Celia)
29 Foreway Drive
2000 Columbia Parkway
Clayton, Missouri 63124
Cincinnati, Ohio 45202
Mr. and Mrs. S. M. McAshan, Jr.
Mr. and Mrs. Ralph Lazarus
(Maurice and Susan)
(Ralph and Gladys)
3376 Inwood Drive
3849 Washington Avenue
Houston, Texas 77019
Cincinnati, Ohio 45229
Mr. and Mrs. Thomas B. McCabe
Mr. and Mrs. Barry T. Leithead
(Tom and Jean)
(Barry and Alberta)
607 North Chester Road
30 Ogden Road
Swarthmore, Pennsylvania 19081
Scarsdale, New York 10583
Mr. and Mrs. John L. McCaffrey
Mr. Augustus C. Long
(John and Florence)
(Gus)
5555 N. Sheridan Road
"Green Plains"
Chicago, Illinois 60640
North
Mathews County, Virginia 23128
Mr. and Mrs. L. F. McCollum
(Mac and Margaret)
Mr. and Mrs. Donold B. Lourie
3620 Inverness Drive
(Don and Mary)
Houston, Texas 77019
60 Woodley Road
Winnetka, Illinois 60093
Mr. and Mrs. Charles P. McCormick
(Charlie and Anne)
Mr. and Mrs. George H. Love
3900 North Charles Street
(George and Peg)
Bal timore, Maryland 21218
5920 Braeburn Place
Pittsburgh, Pennsylvania 15232
First Names and Home Addresses
Page 7
Mr. and Mrs. Neil McElroy
Mr. and Mrs. George L. Morrison
(Neil and Camilla)
(George and Natalie)
3478 Vista Terrace
Ker-Arvor
Cincinnati, Ohio 45208
Harrison Avenue
Newport, Rhode Island
Mr. and Mrs. Earl M. McGowin
(Earl and Claudia)
Mr. and Mrs. Charles G. Mortimer
Chapman, Alabama 36015
(Charlie and Jerry)
17 Platt Place
Mr. and Mrs. James H. McGraw, Jr.
White Plains, New York 10605
(Jay and Lois)
79 East 79th Street
Mr. and Mrs. Frederick H. Mueller
New York, New York 10021
(Fritz and Paula)
1300 Lafayette East
Mr. and Mrs. Paul B. McKee
Detroit, Michigan 48207
(Paul and Dorothy)
01649 S. W. Greenwood Road
Mr. D. Hayes Murphy
Portland, Oregon 97219
(Hayes)
30 Outlook Avenue
Mr. and Mrs. John P. McWilliams
West Hartford, Connecticut 06119
(John and Brooks)
19100 South Park Boulevard
Mr. and Mrs. W. B. Murphy
Cleveland, Ohio 44122
(Bev and Helen)
110 Maple Hill Road
Mr. and Mrs. Irwin Miller
Gladwyne, Pennsylvania 19035
(Irwin and Xenia)
2760 Highland Way
Mr. and Mrs. W. J. Murray, Jr.
Columbus, Indiana 47201
(Bill and Minnie)
711 Elizabeth Avenue
Mr. and Mrs. Frank R. Milliken
Columbia, South Carolina
(Frank and Barbara)
Contentment Island Road
Mr. and Mrs. Charles F. Myers, Jr.
Darien, Connecticut
(Charlie and Becky)
2005 Granville Road
Mr. and Mrs. Roger Milliken
Greensboro, North Carolina 27402
(Roger and Nita)
627 Otis Boulevard
Mr. and Mrs. Albert L. Nickerson
Spartanburg, South Carolina 29302
(Al and Liz)
431 Grace Church Street
Mr. and Mrs. George G. Montgomery
Rye, New York 10580
(George and Claudine)
1728 Crockett Lane
Mr. and Mrs. Aksel Nielsen
Hillsborough, California
(Aksel and Char)
324 Ash Street
Mr. and Mrs. Thos. A. Morgan
Denver, Colorado 80220
(Tom and Celeste)
30 Sutton Place
New York, New York 10022
First Names and Home Addresses
Page 8
Mr. and Mrs. Nicholas H. Noyes
Mr. and Mrs. Gwilym A. Price
(Nick and Marguerite)
(Bill and Marion)
5625 Sunset Lane
Club Road, Rosslyn Farms
Indianapolis, Indiana 46208
Carnegie, Pennsylvania 15106
Mr. and Mrs. Robert S. Oelman
Mr. and Mrs. Edgar M. Queeny
(Bob and Mary)
(Edgar and Ethel)
235 Park Road
#3 Fordyce Lane
Dayton, Ohio 45419
St. Louis, Missouri 63124
Mr. and Mrs. David Packard
Mr. and Mrs. Clarence B. Randall
(David and Lucile)
(Clarence and Emily)
26580 Taaffee Avenue
700 Blackthron Road
Los Altos Hills, California 94022
Winnetka, Illinois
Mr. and Mrs. C. R. Palmer
Mr. and Mrs. M. J. Rathbone
(Bob and Betty)
(Jack and Eleanor)
10 Argyle Place
10 Glendale Road
Bronxville, New York 10708
Summit, New Jersey 07901
Mr. and Mrs. Richard C. Patterson, Jr.
Mr. and Mrs. Philip D. Reed
(Dick and Shelley)
(Phil and Mabel)
The Waldorf Towers
Sunset Lane
New York, New York 10022
Rye, New York 10580
Mr. and Mrs. T. F. Patton
Mr. and Mrs. R. S. Reynolds, Jr.
(Tom and Arline)
(Dick and Virginia)
2711 Landon Road
4509 Sulgrave Road
Shaker Heights, Ohio 44122
Richmond, Virginia 23221
Mr. and Mrs. Charles H. Percy
Mr. and Mrs. Walter M. Ringer
(Chuck and Loraine)
(Walter and Elinor)
40 Devonshire Lane
Route 1, Box 63
Kenilworth, Illinois 60043
Wayzata, Minnesota 55391
Mr. and Mrs. A. Q. Petersen
Mr. Reuben B. Robertson
(Pete and Adele)
(Reuben)
1907 Palmer Avenue
820 Town Mountain Road
New Orleans, Louisiana 70118
Asheville, North Carolina
Mr. John L. Pratt
Mr. and Mrs. William E. Robinson
(John)
(Bill and Ellan)
Chatham Manor
Quaker Lane
P. O. Box 120
Greenwich, Connecticut 06833
Fredericksburg, Virginia 22401
Mr. and Mrs. Donald J. Russell
(Don and Mary Louise)
2298 Pacific Avenue
San Francisco, California 94115
First Names and Home Addresses
Page 9
Mr. and Mrs. Stuart T. Saunders
Mr. and Mrs. Robert T. Stevens
(Stuart and Dorothy)
(Bob and Dorothy)
40 W. Ardmore Avenue
R. F. D. #1 - Woodland Avenue
Ardmore, Pennsylvania 19003
South Plainfield, New Jersey 07080
Mr. and Mrs. Charles Sawyer
Mr. and Mrs. Hardwick Stires
(Charlie and Elizabeth)
(Wick and Jane)
95 East Fountain Avenue
1112 Park Avenue
Glendale, Ohio 45246
New York, New York 10028
Mr. and Mrs. Emil Schram
Admiral and Mrs. Lewis L. Strauss
(Emil and Mabel)
(Lewis and Alice)
Hill Crest
Shoreham Hotel
Box 449
Washington, D. C. 20008
Peru, Indiana 46970
Mr. and Mrs. R. Douglas Stuart
Mr. and Mrs. Blackwell Smith
(Doug and Harriet)
(Blackie and Moyne)
528 North Mayflower Road
R. D. 1
Lake Forest, Illinois
Hopewell, New Jersey
Mr. and Mrs. Gardiner Symonds
Mr. C. R. Smith
(Gardiner and Margaret)
(C. R.)
3359 Chevy Chase Drive
510 Park Avenue
Houston, Texas 77019
New York, New York 10022
Mr. and Mrs. A. Thomas Taylor
Mr. and Mrs. L. B. Smith
(Tom and Geraldine)
(Ted and Lucy Anne)
Shoreacres Grounds
8415 N. Pelican Lane
Lake Bluff, Illinois 60044
Milwaukee, Wisconsin 53209
Dr. and Mrs. Charles Allen Thomas
Mr. John W. Snyder
(Charlie and Marnie)
(John)
609 South Warson Road
8109 Kerry Lane
Ladue, Missouri 63124
Chevy Chase, Maryland 20015
Mr. and Mrs. E. J. Thomas
Mr. J. P. Spang, Jr.
(Eddie and Mildred)
(Joe) (Sister - Marie)
812 Mayfair Road
40 Churchills Lane
Akron, Ohio 44303
Milton, Massachusetts 02186
Mr. and Mrs. Charles B. Thornton
Mr. and Mrs. A. E. Staley, Jr.
(Tex and Flora)
(Gus and Eva)
320 Carolwood Drive
5 Montgomery Place
Los Angeles, California 90024
Decatur, Illinois 62522
Mr. and Mrs. Juan T. Trippe
Dr. and Mrs. Frank Stanton
(Juan and Betty)
(Frank and Ruth)
10 Gracie Square
5 East 92nd Street
New York, New York 10028
New York, New York 10028
First Names and Home Addresses
Page 10
Mr. and Mrs. Solon B. Turman
Mr. and Mrs. John Hay Whitney
(Solon and Dolly)
(Jock and Betsey)
1227 - 4th Street
Greentree
New Orleans, Louisiana 70130
Manhasset, Long Island, New York 11030
Mr. and Mrs. John C. Virden
Mr. and Mrs. Langbourne M. Williams
(John and Pat)
(Lang and Frances)
19701 North Park Boulevard
Retreat
Shaker Heights, Ohio 44122
Rapidan, Virginia
Mr. and Mrs. J. Carlton Ward, Jr.
Mr. and Mrs. Charles E. Wilson
(Carl and Laura)
(Charlie and Elizabeth)
2 Colton Street
7 Hampton Road
Farmington, Connecticut 06032
Scarsdale, New York 10583
Mr. and Mrs. Thomas J. Watson, Jr.
Mr. and Mrs. Henry S. Wingate
(Tom and Olive)
(Harry and Ardis)
Meadowcroft Lane
520 East 86th Street
Greenwich, Connecticut 06832
New York, New York 10028
Mr. J. W. Watzek, Jr.
General and Mrs. Robert E. Wood
(John)
(General and Mary)
P. O. Box 467
464 N. Mayflower Road
Wheaton, Illinois
Lake Forest, Illinois
Mr. and Mrs. Sinclair Weeks
Mr. and Mrs. R. W. Woodruff
(Sinny and Jane)
(Bob and Nell)
Cat Bow Farm
3640 Tuxedo Road, N.W.
Lancaster, New Hampshire 03584
Atlanta, Georgia 30305
Mr. and Mrs. Sidney J. Weinberg
Mr. James W. Young
(Sidney and Helen)
(Jim)
Sherry Netherland Hotel, Apt. 505
800 E. Garcia Road
781 Fifth Avenue
Santa Fe, New Mexico 87502
New York, New York 10022
Mr. and Mrs. Harry W. Zinsmaster
Col. and Mrs. Samuel P. Wetherill
(Harry and Josephine)
(Sam and Alice)
2 Hawthorne Road
143 Rose Lane
Duluth, Minnesota 55812
Haverford, Pennsylvania 19041
Mr. and Mrs. John W. Burke, Jr.
Mr. and Mrs. W. H. Wheeler, Jr.
(Jack and Agnes)
(Walter and Floy)
5014 Glenbrook Road, N.W.
Bishop's Meadow
Washington, D. C. 20016
Sound View Avenue
Stamford, Connecticut 06902
September, 1966
Address by
Secretary of Agriculture Orville L. Freeman
The Business Council Meeting
Hot Springs, Virginia
May 14, 1966
As I was casting about for an appropriate opening thought for today's
talk, a certain line kept running through my mind
The time has come to talk of many things
The time has come to
talk of many things.
There was something familiar about that line, and suddenly it came to
me.
Remember "Through the Looking Glass, which most of us knew as
"Alice in Wonderland"?
""The time has come, the Walrus said, 'to talk of many things. 10
The walrus wanted to talk about shoes and ships and sealing wax, of
cabbages and kings, and why the sea is boiling hot, and whether pigs have wings.
Now I really don't have much to say about ships and sealing wax and
kings, but if I haven't said much lately about cabbages and pigs with wings, I
have had recent occasion to comment on shoes
and hide export quotas
lettuce
and fluttering pork prices.
And as for the sea being boiling hot, that holds no particular fascination
for Secretaries of Agriculture
who traditionally have a working familiarity with
hot water.
Seriously, today I do want to talk to you of many things, of things
vitally important to you, to me
and to this great Wonderland.
Like the lyrical Walrus, I want to talk to you of factory whistles and
whippoorwills
of manufacturing plants and meadowlarks
and of their
compatibility.
I want to talk about space-starved cities and job-starved countrysides
of the dangerous paradox of 70 percent of our people living on 1 percent of our
land
of urban blight
and of rural right to a more equitable share of our
national prosperity.
I want to take direct issue with those who say the mass migration from
country to city is inevitable, inexorable, and desirable
and with those who
Address by
Secretary of Agriculture Freeman
May 14, 1966
Page 2
predict that tomorrow's America should consist of a few huge megalopolitan
complexes strung together by superhighways running through endless miles of
empty land.
I say that this is not desirable. And I contend that it is neither in-
evitable nor inexorable.
And I' m hopeful that you, as Americans deeply interested in the wel-
fare of our country, can be persuaded that it is folly to stack up three-quarters
of our people in the suffocating steel and concrete storage bins of the city
while a figurative handful of our fellow citizens rattle around in a great barn full
of untapped resources and empty dreams.
I believe there is only one way to right the maldistribution of people
and opportunity in America
and that's by putting jobs where there is space
in rural America.
We can help. But only you can put those jobs in the countryside. And
that's why I am here today.
I'm here as a pitchman to sell you on the opportunities awaiting industry
in rural America
opportunities for you who represent business and industry to
do right by yourselves
and right by your country.
I'm here to argue that modern transportation and communication facilities,
coupled with the ready availability of unemployed or under-employed trained and
trainable rural labor, refute the traditional case for locating business and industry
only in the big cities.
In today's America, few industrial plants need be more than an hour or
SO away from raw materials and sales markets, nor more than minutes away from
power supply and manpower
no matter where they are located.
The Federal Government, working in close cooperation with the States
and local communities, can-provide valuable assistance to those of you who wish
to open new plants in the rural areas.
We invite you to come to us for whatever help you need
and that
help, as I'll detail to you, can be both substantial and significant.
But let me make something crystal clear at the outset so there will be no
misunderstanding of what I have to say today.
Address by
Secretary of Agriculture Freeman
May 14, 1966
Page 3
We are not
I repeat
not encouraging "runaway" plants, in-
dustrial "piracy" or the exploitation of the job-hungry countryside.
We are not encouraging any industry to pack up, leave the city, and
move lock, stock and barrel to the countryside.
What we are encouraging is the establishment of sound, new plants,
either by existing businesses or new organizations, which can operate profit-
ably in the countryside
and promise rural Americans parity of income and
opportunity.
Now let me examine for a few minutes what has happened in this
Wonderland of America to turn it into a land of crowded cities and vacant
countryside.
Just last week I hailed a new era in American agriculture.
I did this because it is now apparent that the days of burdensome sur-
pluses are all but over, and a new era of the Ever-Normal Granary is all but here.
Just 5 years ago, we had on hand 1.4 billion bushels of wheat -- more
than a full year's domestic commercial sales and Food for Freedom requirements --
and a new crop was about to be harvested.
Who would have believed then that in just 5 years such a tremendous
supply of wheat would have been reduced to a point where the President and the
Secretary of Agriculture could proudly announce, as we did last week, a 15 per-
cent increase in wheat acreage allotments?
I called the announcement of the wheat acreage allotment increase an
example of the new flexibility and adaptiveness of our great agricultural pro-
ducti on plant.
It is flexible. It is adaptive. For we have now reached the point where
we can move millions of acres of land in and out of production with efficiency and
economy
and we can do.it without huge, costly surpluses to gouge the tax-
payer and depress farm income.
And how is farm income? The best in many years
Gross farm income will be nearly $10 billion more this year than it was
in 1960.
Net income per farm will approximate $4,600 in 1966, compared with
only $2,956 six years ago.
Address by
Secretary of Agriculture Freeman
May 14, 1966
Page 4
And the products moved into foreign markets from our farms will return
5 billion hard dollars this year
a dollar sales figure more than 50 percent
greater than in 1960.
And while the American farmer has been improving his own income by
cooperating with the major farm programs of the past 5 years, he has continued
to provide domestic consumers with abundant and varied diets for a steadily
diminishing percentage of their takehome dollars.
Americans spend a lower percentage of their incomes for food than any
other people on earth, a fact all of us should keep in mind in the current concern
over inflationary pressures.
And SO you see, we are well on our way to solving the farm problems
which appeared so frustrating less than a decade ago
And now it is time to
turn our attention, and our efforts, toward brightening the entire picture of rural
America today.
Let us see why this must be done.
In a relatively short span of history, the productive genius of the
American farmer has allowed us to move from what was once basically an agrarian
society to what is now basically an industrial society.
As the farmer began to produce more than enough for his own needs,
some were freed for other pursuits. For as technological advances were made in
agriculture, fewer and fewer farmers were required to feed more and more people.
In our technologically-oriented society, we know this trend will continue.
In earlier times, this presented no great economic or social problems.
Farmers left the land to move to the settlements and become artisans and trades-
men, merchants and teachers.
This was the beginning of the exodus from rural to urban America
and in the beginning
and for generations after
it was a healthy trend,
for the growth of the great urban areas was undoubtedly a key factor in the phe-
nomenal economic development of this nation.
We all know we must have healthy, thriving cities. We know that our
economy could not exist without them. And we know that every effort must be
made to strengthen the cities and cure their ills. For too many of our big cities
are in deep, deep trouble.
Aristotle once said that people live in cities "in order to live the good
life. =
Address by
Secretary of Agriculture Freeman
May 14, 1966
Page 5
But President Johnson has said: "It is harder and harder to live the
good life in American cities today. II
And it will become even harder to live the good life in our cities un-
less the forced migration of millions of Americans from rural America to the
urban centers is slowed, stopped
and reversed.
By the year 2000, demographers tell us, 4 out of 5 Americans will
live in metropolitan areas.
Two hundred and forty million people will live in 8.7 percent of the
Nation's land area, while only 60 million will occupy the remaining 91.3 per-
cent.
Imagine, if you can, American cities more densely populated than the
most crowded countries in the world. Again, if the planners are right in their
predictions, the average population density of the urban areas of the United
States will be 774 people per square mile by the year 2000. Japan, crowded
as it is, has only 672 people per square mile.
Plagued already by the multiple problems of too many people for too
little space, how can our cities hope to keep pace if these predictions material-
ize?
My friends, we simply cannot afford, sociologically or economically,
to continue to let all of the fall-out from the population explosion settle on our
urban centers.
More people moving to the cities means more problems, more waste,
more loneliness and more despair.
It means more smog in the air and more filth in the water. It means
more traffic, taxing and education snarls, frustrations and failures. And it
means more human demands against less human incentive.
Do we, as Americans vitally interested in the welfare of our Nation,
really want this?
Of course we don't.
Then what can we do about it?
Address by
Secretary of Agriculture Freeman
May 14, 1966
Page 6
Bev Murphy answered that in these words: "This picture of greater
and greater population concentration is, to me, unpleasant and expensive, and,
I would hope, not inevitable
If jobs are available in the thousands of small
towns and cities away from metropolitan areas, I think most of the people in
these rural areas will not move. They will prefer to live in the circumstances
in which they were reared."
Bev Murphy backs words with action. The Campbell Soup Company now
has 20 of its 26 plants in rural areas, and he has told us the results have been
splendid.
I am pleased by his report
but not surprised. The Campbell Soup
Company's experience with rural locations is being duplicated with equally en-
couraging results by other large and small companies.
I say I am pleased, but not surprised, because I have all the confidence
in the world that there is a "right" rural area for any industry looking to new sites
for new plants or expansion,
Rural America has so much to offer business and industry.
It has the tangibles: clean air, abundant pure water, relatively low
land costs, building costs, utility costs, and service costs.
Some areas offer additional tangibles. I speak of those responsible
communities where, in the absence of industry, home owners and small business-
men have willingly shouldered heavy tax burdens to provide good schools and
teachers for their children, to support the best possible police force, to carry
out sound local welfare programs, and to build excellent community health faci-
lities.
And I speak of those communities scattered throughout our Nation which
have organized local development committees to work for new industry for their
towns and to help industry find sites.
And then there are the other, perhaps less tangible, advantages offered
by rural America. Freedom from congestion. Space to breathe. Space to live.
Space to grow. Space to play. Space to drive and space to park. Recreational
opportunities of exciting variety minutes from home and work. Community identity.
Community pride.
Many Americans yearn for these blessings.
Address by
Secretary of Agriculture Freeman
May 14, 1966
Page 7
A Gallup poll published in March of this year revealed that while
only about a third of the people actually live in small towns or rural areas,
nearly half of all persons surveyed in the poll said that if they had their
choice, they would like to live in a small town or on a farm.
Dr. Charles N. Kimball, President of the Midwest Research Institute
in Kansas City, Missouri, recently declared that "many Americans would move
away from the metropolis if given half a chance. "
And so they would. But the catch phrase here is "given half a chance. "
For the unpleasant truth is that for far too many years rural America has
not been able to give its people "half a chance."
Despite its many blessings, the countryside traditiona has offered
little but discouragement to widely disparate segments of its society -- the
gifted and well-educated
and the unwanted and untrained.
The gifted were unable to find the challenges and the opportunities
their spirit and training required. The unwanted and the untrained were simply
unable to find work to earn a bare livelihood.
Thus the exodus to the megalopolis. A steady stream of millions of
young people with each passing year. Some in search of the mystical urban
touchstone of success. Others, pushed aside by the technological revolution
on farms and in mines, untrained for jobs in strange places, or the victims of
racial discrimination, moved to the cities in desperate search for little more
than food, clothing and a roof over their heads.
So you see, my friends of business and industry, that while rural
America has much to offer you
you have much to offer rural America.
It is my hope that you will help each other to your mutual benefit.
And it is my contribution to call to your attention, the tools "creative
Federalism' can supply to help you help speed the economic development of rural
America.
Encouraging this effort is not just the personal whim of the Secretary
of Agriculture. It is a national effort spelled out by President Johnson when
the Rural Community Development Service of the Department of Agriculture was
born a little more than a year ago.
Address by
Secretary of Agriculture Freeman
May 14, 1966
Page 8
"It is not easy, the President said, "to equitably distribute Federal
assistance to a scattered rural population
A method must be developed to
extend the reach of those Federal agencies and programs which should, but do
not now, effectively serve rural areas."
The President then urged each Department and agency of government
to make sure its programs reached both urban and rural areas on equal terms.
The President also directed the Secretary of Agriculture to put the
facilities of his field offices at the disposal of all Federal agencies to assist
them in making their programs effective in rural areas.
The Rural Community Development Service now maintains a continuing
liaison in Washington with all Federal agencies offering services which can be
used in rural America
and it uses the Department of Agriculture's field staff
to carry to community leaders information about the full range of Federal ser-
vices, the relationship of one to the other, and the procedures for achieving
their use.
As we have sought to help rural America develop a broader range of
economic and social opportunities, we have learned that many smaller com-
munities -- working alone -- cannot muster enough of the skills and capital
resources required to effectively help themselves, or even to avail themselves
of State and Federal assistance.
To meet this problem, the President this year proposed legislation which
would create Community Development Districts. Already approved by the Senate,
and now before the House Agriculture Committee, this proposal, if enacted, would
lean heavily upon the planning and development agencies of State government for
effective implementation.
One of its major purposes is to help rural communities which are linked
together in a natural commuting pattern to pool their skills and resources to de-
velop a physical, social and public service environment which would be more
attractive to industrial, business, and personal service institutions.
These programs, and a new program I will introduce to you today, sup-
plement the Rural Areas Development effort which since its inception in 1961 has
mobilized more than 150,000 rural leaders to work to create new job opportunities
and improve rural living conditions.
These leaders have organized and promoted no less than 20,000 pro-
jects -- projects ranging from industrial parks which bring new jobs to communities,
to the construction of community facilities to make these communities more at-
tractive to industry.
Address by
Secretary of Agriculture Freeman
May 14, 1966
Page 9
And now I want to announce the establishment of an even more specific
program to hasten the economic development of rural America
and I can think
of no more appropriate forum to make this announcement.
The Department of Agriculture is now ready to launch a Rural Industriali-
zation Program which, I am confident, can make a valuable contribution to the
well-being of our entire Nation.
Through this program, we hope to bring the profit opportunities in
America's smaller communities to the attention of industry.
To help businessmen investigate that potential, the Department's Rural
Industrialization staff will consult with businessmen
in Washington or in
their own offices.
Whenever asked, we will also serve as liaison in arranging whatever
financial and technical assistance is needed.
To promote this program, we are preparing a brochure which will spell
out the advantages for industry in the countryside, and will detail the Federal,
State and local assistance available to industry.
This brochure discusses rural labor pools, details the training programs
financed by the Government, offers specific information on Federal, State and
local industrial financing programs, discusses industrial sites, water, natural
resources, and transportation facilities available in rural areas, and specifically
describes how the United States Department of Agriculture can help businessmen
open new plants in rural areas.
I hope you find it interesting and informative.
In summary, then, let me quickly review the problem
and the potential
solution.
Three-quarters of our people are jammed onto 1 percent of our land
and still the migration to the cities continues.
The problems and the costs of the cities will continue to increase until
that migration is stopped.
Without opportunity in the countryside, the farmers who are no longer
needed in an agriculture in technological revolution, the well-educated of the towns
and small cities, and the unwanted and untrained will continue to move to the
cities.
Address by
Secretary of Agriculture Freeman
May 14, 1966
Page 10
To keep people in rural America, opportunities must be created for
them.
Specifically, jobs must be provided.
You who represent business and industry can provide those jobs, and,
at the same time, serve the best interests of your country by helping to cure
both the ills of the countryside and the ills of the city.
I have tried to spell out the advantages of industrial expansion in
rural America, and our new Departmental program to encourage rural industriali-
zation will continue that effort.
We want you to be aware of the acres of choice industrial land which
will accommodate your present needs and future expansion, help improve service
to regional and local markets, service growing new markets created by an ex-
panding and mobile population
and, at the same time, reduce operating costs.
We want you to know that most rural communities have an abundant
supply of water for industrial needs and recreational pursuits or developments, a
ready source of industrial fuel and power, access to rail, highway, air, and in
some cases water, transportation facilities, and a ready-made labor pool of
skilled and trainable people.
We want you to know that there are three broad classes of training pro-
grams financed by the government to train workers for new and existing plants.
We want you to know that an economically healthy rural America, a
rural America which provides jobs and opportunity, can offer you and your workers
convenience, contentment, serenity, pleasure and that personal fulfillment and
enrichment which comes to those in close accord with Nature.
We want you to know that "creative Federalism" is working to make the
small communities of our Nation better places to live, to work, to produce and
to play.
And we want you to know that all of the considerable resource assistance
of the Federal Government is at your disposal in any effort you make to bring more
economic opportunity to rural America.
If we cooperate. If we work together. If we pool our resources, then
the day will come, gentlemen, when meadowlarks fly over manufacturing plants,
and the call of the whippoorwill will blend with the cry of the factory whistle.
Address by
The Comptroller General of the United States,
Elmer B. Staats
The Business Council Meeting
Hot Springs, Virginia
May 13, 1966
The Importance of the General Accounting Office to American Business
The central issues in this conference understandably are Viet Nam and
the inflationary pressures which stem in large part from Viet Nam I cannot
claim that the General Accounting Office, which I head, plays a crucial role
with respect to either. What I can claim, however, is that this Office plays
a vital role in the integrity of Government operations, in economy and efficiency
of governmental operations, in the interpretation of laws affecting expenditures,
and in the way Government contracts are administered.
What I should like to do briefly is tell you who we are and how we carry
out our job. It is important that you as businessmen know more about us. It is
important to us that we have your support and know your viewpoints on Government
spending.
The concept of the independent and impartial review or audit of Government
expenditures is deeply founded in the American and Anglo-Saxon history. Our or-
ganization was not established, however, until 1921 -- some forty-five years ago.
The concept of independence was deeply imbedded in that legislation.
The Comptroller General is an agent of the Congress.
While appointed by the President, he can be removed only
by impeachment or joint resolution by the Congress.
Both he and the Assistant Comptroller General are appointed
for terms of 15 years.
The Comptroller General cannot be reappointed.
The Comptroller General and his staff are appointed on a
nonpolitical basis; every Comptroller General has emphasized the non-
partisan nature of the organization.
Now, what do we do -- what are our functions?
Address by
Comptroller General Staats
May 13, 1966
Page 2
First, the Comptroller General's rulings are final - except for recourse
to the courts or the Congress -- with respect to the legality of expenditures.
When in doubt, agencies or contractors seek our legal advice in advance; other-
wise, the GAO rules after contracts are let or expenditures are made. We pass
on bid protests, adequacy of agency contracting procedures, and claims against
defaulting contractors.
Second, our Office reviews claims filed by the Federal Government
against another party and reviews claims against the Government when these
cannot be settled by the agencies concerned or which involve doubtful questions
of fact or law. Last year, we handled over 50,000 claims in both categories in-
volving just under $100 million.
Third, as an agency of the Congress, we provide a multitude of services
to the Congress -- assisting in the drafting of legislation -- handling inquiries
from Members as well as committees -- making factual investigations -- testify-
ing before committees -- furnishing operational and financial audit reports.
Currently we have over fifty professional staff people assigned to congressional
committees.
Fourth, the GAO has the legal responsibility for approving all agency
accounting systems. This means that we provide professional and advisory
assistance to the agencies in developing financial control systems which meet
our standards and principles. We review and evaluate their systems in operation,
and we make certain that they are kept up to date to meet changing circumstances.
Fifth, and finally, our Office is responsible, with limited exceptions, for
audit of all programs, activities, operations and financial transactions of the
Federal Government. The scope of our work extends to the 11 major executive
departments and some 60 independent agencies and commissions.
My remarks today will focus on this latter function since our basic, role
is to check on the effectiveness of the system of management and internal control
of each Federal agency. This requirement extends to the negotiation and admin-
istration of Government contracts for seeing that
the contracts are made with due regard to the "lawfulness
and justice" of public accounts,
the prices paid to the contractors are reasonable,
Address by
Comptroller General Staats
May 13, 1966
Page 3
the contractors properly discharge their responsibilities
under the contracts, and
the administrative contracting practices are effective and
efficient.
Our audits of negotiated Government contracts directly affect the busi-
ness community.
Before developing this point further, let me say a brief word as to how
we carry out our functions:
1. We are located in 16 regional offices and 30 suboffices, and
2 offices overseas.
2. We have a total staff of approximately 4200 people, including
about 2300 professional accountants and auditors.
3. We have a staff of about 100 attorneys, highly trained and
with an outstanding reputation in and out of Government for competence
and objectivity.
4. We have one of the most active recruiting and training pro-
grams for accountants and auditors in the country, affecting some 400
colleges and universities where we limit interviews to the top 25 percent
of the class.
It is my purpose to maintain -- and improve, if possible -- the professional
competence of our personnel. As critics of agencies' and contractors' operations,
we have to develop the facts correctly, and we have to interpret them fairly to all
parties.
Examples of Work
In a Government as. big as ours, you might reasonably ask how do we decide
what areas to investigate? What priorities do we establish?
Our first priority, of course, is to serve the Congress in terms of direct
requests or in areas where, because of congressional hearings or investigations,
we can either anticipate a request or develop useful and pertinent reports. We
attempt to keep closely in touch with the staffs and chairmen of the legislative
committees, particularly the Appropriations Committees and the Government Opera-
tions Committees. Altogether we furnished Congress last year over 500 reports,
Address by
Comptroller General Staats
May 13, 1966
Page 4
in addition to the hundreds of reports which we sent to agencies suggesting
specific improvements.
Second, we try to focus on areas of major expenditures. Appropriately,
over fifty percent of our staff is assigned to work directly concerned with the
Defense Department, with the heaviest emphasis on procurement, construction,
and pay and utilization of manpower.
Let me emphasize at this point that we have had fine cooperation from
the Department of Defense. Secretaries McNamara, Vance, Morris and Ignatius
have been strong supporters of the GAO. While we may have differences from
time to time in a given situation, there is no reluctance on their part to seek out
the facts and to act accordingly. This is not to imply a lack of cooperation from
other agencies, but the strong and vigorous efforts exerted in the Defense Depart-
ment in the past few years have been particularly dramatic and have made our
work more productive.
Third, we report on new areas where there may be a clear tangible savings
payoff -- however small it may be -- frequently developed in connection with a
general review of financial transactions.
Fourth, we seek ways to improve operations through auditing programs
which have balance of payments implications.
Fifth, we have given high priority to ut ilization of excess foreign cur-
rencies developed as a result of our Government's "Food for Peace" and other
programs.
Sixth, we are emphasizing the relative costs of contracting out or pro-
ducing directly commercial and industrial products and services -- the old
"make-or-buy" problem.
Let me cite a few examples just to make these statements more specific.
Supply Management in the. Defense Department
Acquisition and management of personal property in the United States
Government requires vast resources in manpower and procurement and maintenance
dollars. At June 30, 1964, the latest date a compilation was made, worldwide
inventories of equipment and supplies totaled approximately $177 billion, 75 per-
cent of which was in the Defense Department.
Address by
Comptroller General Staats
May 13, 1966
Page 5
The magnitude and complexity of the management and operations of the
military supply systems is without parallel. Our reviews have embraced a
variety of aspects of supply management -- determination of stock requirements,
control and management of the supply inventory, use and disposal of excess
stocks, interservice utilization of supplies, acquisition of storage facilities
and storage practices, administration of the Defense Standardization Program,
and control over drawings and technical data, to name a few. Our audit efforts
in the supply area are directed, of course, toward improving management and
operating controls and financial administration of the complex supply operations.
In one recent review we found that the supply system of the Department
of Defense included hundreds of thousands of low-volume minor items of the type
which are readily available from commercial sources and could be procured dir-
ectly by the users as needed rather than be kept in stock in the military ware-
houses. These items included such things as screws, nuts, bolts, washers, pins
and the like. We estimated that direct procurement of such items would reduce
management costs by about $50 million a year and the investment in supply in-
ventories by about $275 million. The Department of Defense revised their supply
management policy with respect to low-volume minor items substantially along
the lines recommended by us.
Defense Department Procurement Program
Procurement contracts for goods and services constitute about one-third
of our national budget. Because of the need for new and complex items, parti-
cularly weapons systems acquired by the Department of Defense, a large part
of the contracts awarded by the Government are awarded pursuant to negotiation.
Negotiated prices must be based largely on actual or estimated costs of producing
the articles required. Such cost information, therefore, must be sound and
realistic to provide for the negotiation of reasonable prices.
Government agencies, in response to our reports over the years, have
strengthened the Federal Procurement Regulations and the Armed Services Procure-
ment Regulations in many areas, particularly the regulations covering negotiation
and administration of prime contracts and subcontracts. These actions, we
believe, have promoted an increased awareness by administrative personnel of
their individual responsibilities and of the pitfalls that may be encountered in
the use of the authority to negotiate contracts. Our reviews also contributed
substantially to enactment of Public Law 87-653 which amended the Armed Ser-
vices Procurement Act to require more emphasis on competitive procurement and,
in the case of negotiated contracts, to require "truth-in-negotiation", through the
submission of current, accurate, and complete cost or pricing data upon which to
base negotiations.
Address by
Comptroller General Staats
May 13, 1966
Page 6
The position of the Department of Defense on the potential for savings
through increased competitive procurement was expressed in hearings held in
February 1964 on the Department of Defense appropriations for fiscal year 1965.
In testimony before the House Committee on Appropriations, the Secretary of
Defense stated that in 1961 the Department of Defense had studied a large
number of General Accounting Office and congressional committee reports which
concluded that millions of dollars were being wasted because of the failure to
obtain price competition more extensively in the procurement of spare parts and
small end items. He stated further that the Department's own analysis of pro-
curement procedures fully confirmed those conclusions and that as a result he
had instructed the military departments to increase the proportion of the total
value of contracts awarded on the basis of price competition. The Secretary
reported in July 1965 that during fiscal year 1965, the Department of Defense
would achieve annual savings of $550 million through increased competition.
Review of Civilian Agency Programs
Apart from our extensive reviews of the military operations and activi-
ties, our work extends into practically every other department and agency of the
Government. We make selective examinations of significant programs and acti-
vities in which opportunities appear to exist for potential savings.
In 1965 we recommended the inclusion of a provision in the Internal
Revenue Code to give the Internal Revenue Service authority to collect self-
employment taxes on a pay-as-you-go basis to ease the end-of-the-year tax
payment burden on self-employed individuals and, at the same time, reduce the
administrative problems encountered by the Service. Collection of such taxes
during the current year would provide the Government with the use of tax monies
at an earlier date, enabling the Government to save at least $5 million a year in
interest on borrowed funds. The Treasury Department concurred in our proposal
and the Congress enacted such a provision in the Tax Adjustment Act of 1966.
On the basis of reviews we made of the Coast Guard's operations, we
expressed the belief that its basis for replacing high-endurance vessels was
questionable and that the stated requirements could be reduced, thereby saving
about $100 million in construction costs and about $7.4 million annually in
vessel operating costs. In developing its vessel requirements, the Coast Guard
did not use actual operational data to determine the number of new high-endurance
vessels needed. These vessels are used primarily for search and rescue opera-
tions and ocean-station duties.
We proposed that the Coast Guard reexamine its plans and consider re-
vising its program to relate acquisitions to needs based on actual utilization
Address by
Comptroller General Staats
May 13, 1966
Page 7
data and current operating standards. The Commandant of the Coast Guard
concurred with our proposal and has taken the necessary action to provide
for a new and critical review of vessel requirements.
Recently we noted that the Post Office Department had awarded several
contracts for postal supplies and equipment to sole bidders without obtaining
effective competition. After we brought this to their attention, the Department
used competitive negotiation procedures in awarding the next contract for
stamped envelopes with an estimated savings over the four-year period of
this contract of about $6.25 million.
We also noted that the Post Office Department had adopted an improper
cost allocation practice which resulted in the Department's selling stamped
envelopes at a substantial loss. The Department is required by law to sell
stamped envelopes as nearly as possible at cost, but not less than cost. We
estimated that the cost of selling stamped envelopes exceeded revenues for
the four-year contract period by $7.5 million, compared with the Department's
reported loss of $1.3 million. The Postmaster General has advised us that the
Department would discontinue the improper practice and, shortly thereafter, he
announced that effective September 11, 1965, there would be a substantial in-
crease in the price of stamped envelopes.
International Programs
The General Accounting Office in 1963 established a separate Inter-
national Operations Division to devote increased effort to such programs as
"Food for Peace", development loans, technical cooperation, the Alliance for
Progress, and military assistance.
Our reviews have disclosed that in some instances the amount of economic
assistance furnished has been excessive in relation to the capability or willing-
ness of the recipient countries for effective utilization. In another review, the
agency agreed with our proposal to curtail use of aid funds for imported com-
modities of a non-essential character.
Our interest in the balance of payments issue has resulted in major savings
in dollar expenditures in foreign countries. Two examples from a large number of
reports will suffice. As a result of our examinations, we reported that United
States agencies had expended about $2.3 million annually to buy air tickets for
official travel to or from eight countries instead of utilizing available excess
United States-owned foreign currencies. This situation has now been corrected.
Address by
Comptroller General Staats
May 13, 1966
Page 8
We also found that excessive dollar expenditures were incurred in
ocean transportation of "Food for Peace" commodities because of piecemeal
shipments or because shipments were routed to high-rate instead of lower-
rate ports. The agency recognized that there was an imbalance of shipments
between ports. There subsequently has been some adjustment to correct this
imbalance.
Our Office frequently has made reviews of foreign aid on a country
program basis. That is, we have selected segments of the country programs
and examined into such matters as validity of the requirements, timeliness of
deliveries, and effectiveness of utilization of the equipment or services. We
plan to give continuing attention also to the practices and procedures relating
to procurement of equipment, supplies, and services for foreign aid programs,
and to the administration of loans.
Transportation Activities
The Comptroller General has three special responsibilities in the trans-
portation area: making rate audits of paid transportation bills, reviewing com-
mercial traffic routing by Government agencies, and prescribing standard trans-
portation forms and procedures for ordering, billing, and paying for these ser-
vices.
The Federal Government is the largest single customer in our economy
for the major modes of transportation. This fiscal year we will examine about
$1 billion of Government payments for commercial freight services and over
$400 million for commercial passenger services, representing a substantial
portion in total revenues of the airline, steamship, and household goods moving
industries. Since 1950 we have collected nearly $500 million from carriers as
a result of our rate audits, including approximately $250 million from a reaudit
of World War II transportation payments.
We are most conscious of the fact that our role in the Government's
transportation operations has an important impact on the carriers. This means
that we must have extensive coordination with the industry to resolve mutual
problems of rate interpretations and documentation. We meet frequently with
representatives of individual carriers and of the carrier associations, such as
the Association of American Railroads, the Air Transport Association, several
steamship associations, and various branches of the trucking industry.
One of our activities in this area which is, perhaps of greatest interest
to industry is the development of simplified transportation forms and procedures.
Working closely with the major Government traffic management organizations, we
are currently evaluating a system of simplified documentation for small shipments
Address by
Comptroller General Staats
May 13, 1966
Page 9
that will provide a minimum degree of uniformity for Government transportation
and accounting operations, while permitting carriers to generally move the
small shipments on their normal commercial paper. This system is being tested
now and, if it is proven sound, we anticipate that it will be extended through
coordinated efforts with carrier groups to cover most of the Federal Govern-
ment's freight shipments.
Savings in the Government's Use of Automatic Data Processing Equipment
Exclusive of computers used for military and space operations and those
used by Government contractors, the Government today is spending more than a
billion dollars to operate approximately 2500 computers, In 1950, there were
virtually none. The total annual bill direct and indirect for computers is today
$3 billion.
The Comptroller General is obviously interested in this matter. The com-
puter has brought with it tremendous savings in many areas and the ability to
undertake functions that could not have been dreamed of without it. Our concern
with the matter -- aside from the costs involved and the potential payoff -- is
twofold:
1. Should the Government buy or lease computers?
2. Are we obtaining the maximum use of the computers whether
they be leased or purchased?
Beginning in March 1963, the GAO has issued numerous reports on the
subject starting at a time when only about 15 percent of the equipment was pur-
chased. As a result of our efforts and those of the Bureau of the Budget, the
General Services Administration, and the House Committee on Government Opera-
tions, this percentage has increased to 50 percent. The resultant savings over
a five-year period are over $200 million with annual savings thereafter of $100
million.
Some Thoughts About the Future
It is a dangerous thing for a new Comptroller General -- in office for
only two months as of tomorrow -- to speculate or forecast the program of an
organization 45 years old and headed by four distinguished incumbents ahead of
him. With this underlying qualification, let me outline some of my current
thoughts:
1. We will make a special effort to relate our activities more
directly to the work of the committees of the Congress. We will do
Address by
Comptroller General Staats
May 13, 1966
Page 10
this by more intensive contacts with the committee chairmen and their
staffs to program our work to a maximum degree to deal with subjects
of interest and concern to these committees.
2. We will do our best to adapt our capabilities to new prob-
lems and new opportunities as governmental programs and policies
change. In the area of Government procurement, value engineering,
two-step advertising, multi-year procurement, and total package pro-
curement are all relatively new concepts. These, and such new pro-
curement practices and major trends in contracting as the increased
use of negotiated fixed-price contracts and contracts having incentive
provisions, will require our attention. The burgeoning Federal programs
in the fields of health, education, transportation, welfare, and the
like will also require ever increasing attention. We will devote further
efforts to reviews of the Government's space and research programs.
3. We will devote greater attention to the subject of Government
competition with private industry for goods and services which the
Government requires for its own use. The recent Presidential statement
and Bureau of the Budget policy circular on this issue are significant
steps forward. We will be supporting the Bureau of the Budget in its
follow-up efforts, particularly with respect to such important areas as
communications and service and maintenance contracts.
4. We will work with the agencies to strengthen internal audit
and inspection machinery. The GAO cannot hope to do the entire job
itself; it must rely on the primary responsibility of the agencies. We
plan to report to the Congress our evaluation of the adequacy of the
audit and inspection machinery of the major agencies. The establish-
ment of the Defense Contract Audit Agency is an example of a major
step in this regard.
5. We will step up our efforts to improve the financial manage-
ment practices of the agencies. We will offer greater technical assist-
ance to them. Sixteen years ago Congress directed that accrual account-
ing systems be established in all agencies. Less than one-third of the
civilian agencies today have accounting systems approved by our Office.
The Defense Department system will not be ready until fiscal year 1969.
This is not a good record and we will try to improve upon it.
6. We will continue to seek every opportunity to find savings
which will improve our balance of payments situation. Our role here
cannot be the major one, but every bit helps and we must do our part.
Address by
Comptroller General Staats
May 13, 1966
Page 11
7. While specific dollar savings cannot tell the whole story as
to the effectiveness of our organization, we will continue to highlight
the specific savings which accompany our recommendations. We take
pride in the more than $180 million saved as a result of our efforts
last year. But I suspect that the real savings can be attributed to
the fact that there is a GAO which is on the job and which is going to
be taking a second look at Government operations. This provides a
discipline and a deterrence which otherwise would not exist in our
large and sprawling Federal Government.
The critic's role which we play is not an easy one. There will always
be those who charge that we specialize in 20/20 hindsight; there are many who
feel that it is easy to be critical if one does not have the operating responsibility.
Of course, our auditors find and report that at times what is needed is a little
more foresight on the part of agencies or contractors! Seriously, though, we
can only say in response to these criticisms that we pledge our best efforts to
present our facts in a fair and objective manner and that the agencies and con-
tractors will have full opportunity to state their views which will be reflected
in our reports. However, we have an important responsibility to carry out, and
we mean to discharge our responsibility fully and effectively. When I was sworn
into my present post, the President indicated that he hoped I would carry out my
new duties without "fear, favor, or fuss." It is my intention to do just that.
Summary of Remarks by
The Honorable William McC. Martin, Jr.
Chairman, Board of Governors
Federal Reserve System
at The Business Council Meeting
Hot Springs, Virginia
October 16, 1965
Summary of Business Conditions
October 1965
Industrial production declined in September, but non-farm employment
increased and the unemployment rate edged down. Retail sales declined slightly.
Bank credit changed little after a very large increase in August. The money supply
increased sharply, while the rise in time and savings deposits slackened. Common
stock prices advanced to a new high in active trading.
Industrial Production
The Board's index of industrial production declined 1 per cent in September
to 142.8 per cent of the 1957-59 average, which was about the level in June. The
decline resulted mainly from a sharp cutback in steel output, but strikes also cur-
tailed the production of aircraft, autos, newspapers, and coal.
Iron and steel production declined 13 per cent in September and continued
to fall in October as steel users reduced inventories following the wage settlement
in the steel industry. Output of construction materials was maintained, but pro-
duction of nondurable materials declined largely as a result of work stoppages in
the coal industry and curtailments in crude oil output because of Hurricane Betsy.
Consumer goods production continued to change little from levels prevail-
ing since the beginning of the year. Auto assemblies declined 3 per cent because of
a work stoppage early in the month. However, output of home goods and apparel
was maintained, and consumer staples increased somewhat. Production of business
equipment increased further to a level 12 per cent higher than a year earlier.
Construction
Construction expenditures in September remained at the advanced July-
August level and near the record annual rate of $69 billion reached in June. Resi-
dential construction continued to decline moderately, but business and other private
construction increased further. Public construction, revised downward in August,
edged above its high June level.
William McChesney Martin, Jr.
October 16, 1965
- 2 -
Employment
Nonfarm employment continued to expand in September but the increase
in manufacturing was slowed by a reduction in steel employment. Gains in durable
goods were concentrated in machinery, electrical equipment and ordnance. Employ-
ment increased in most nonmanufacturing industries and rose sharply in state and
local government with schools back in session. The average workweek in manufactur-
ing was unchanged from August and a half-hour below the high first quarter average.
The unemployment rate, at 4.4 per cent, was down slightly from August.
Commodity prices
The industrial commodity price index edged up from mid-September to
mid-October. Advances occurred in fuel oils and some chemicals and paper pro-
ducts. Prices of newly introduced 1966 model cars, adjusted for excise tax reduc-
tions and added safety features, were about the same as those for new models a
year ago. Average wholesale prices of foodstuffs changed little although meats
declined somewhat.
Distribution
Sales at retail stores declined 1 per cent in September, according to
advance estimates, and were nearly 2 per cent below the record July volume. The
September decline was concentrated in durable goods, particularly in autos which
were affected by later introductions of new models this year.
Bank credit, money supply, and reserves
Commercial bank credit showed little change in September following a
sharp rise in August. Most major categories of loans increased substantially while
holdings of U. S. Government securities and security loans declined. Following a
small increase in August, the money supply rose sharply in September in associa-
tion with an unusually large reduction in Treasury balances at commercial banks.
Time and savings deposits increased further, but less rapidly than in July or August.
Net borrowed reserves averaged about $150 million and member bank
borrowings about $550 million in September. Both were little changed from the
average of other recent months. Total outstanding reserves also showed little
change as reserves freed by a sharp decline in Government deposits were used to
support further expansi on of privately-held demand and time deposits.
William McChesney Martin, Jr.
October 16, 1965
- 3 -
Security markets
Yields on corporate and state and local government bonds continued to
rise from mid-September to mid-October, when corporate bond yields reached the
highest levels since early 1960 and municipals the highest since late 1961. Yields
on U. S. Government securities fluctuated more than usual, rising in the latter part
of September and declining in the first half of October. In mid-October the three-
month Treasury bill was about 4.00 per cent, compared with 3.90 per cent a month
earlier.
Common stock prices advanced in very active trading. In mid-October,
average prices were slightlyabove the previous record set in mid-May.
Remarks by
The Honorable Alan S. Boyd
Under Secretary of Commerce for Transportation
The Business Council Meeting
October 16, 1965
It is getting to be somewhat of a tradition for the Under Secretary of
Commerce for Transportation to address this fall meeting of The Business Council
here in Hot Springs.
And the task seems to get more enjoyable each time as the economy
continues to perform like that famous fullback for the Cleveland Browns - Jimmy
Brown, who sets a new record of achievement each time he tucks the pigskin under
his arm.
Our economy, now in its 56th month of continued expansion, also is
setting new records with every tick of the clock and every jangle of the cash register.
The latest Department of Commerce business indicators show personal income, gross
national product, corporate profits before taxes, and our industrial production index
all at new peaks.
These are good times for the American businessman and the American
consumer, but we can't afford to be smug or complacent about our good fortune. Each
day that brings a new economic record of achievement brings with it new responsibility.
As President Johnson remarked recently in outlining the goals of the Great
Society:
"In the remainder of this century, urban population will double, city
land use will double, and we will have to build homes, highways and other facilities
equal to all those built since the country was first settled.'
We face that same challenge in the field of transportation, which today
represents nearly one-fifth of our gross national product.
Based on reasonable projections of freight traffic over the next 20 years,
freight traffic and freight carrier investment will increase at least as fast as the
national economy.
The Council of Economic Advisers sees a potential economic growth of
at least 4 percent a year. Thus, a doubling of the GNP in constant dollars, should
bring a doubling of freight movement over that 20-year span.
In overall intercity ton miles of freight, that means our transporation
system will be hauling between 2.6 and 3 trillion tons a year. Compare this to the
stagnant level of about 1.3 trillion which was the range of activity for the late 1950s
and early 1960s. Three trillion tons a year is three thousand billion tons, a figure
most of us find a little hard to comprehend.
The Honorable Alan S. Boyd
Page 2
October 16, 1965
What does this mean in terms of investment? Let's use our railroads
as an example. They are valued on the books today at about $33 billion in plant
and equipment with a replacement value approximating some $75 billion.
That represents only one mode in our vast and complex transportation
network. Think what that will mean in terms of doubling our investments in water,
air, highways, pipelines, all forms of transport.
Reflect, too, if you will, what this will require in terms of Governmental
policy and regulation.
Our primary assignment in the Office of The Under Secretary of Commerce
for Transportation is to develop a coordinated system of transport which will assure
the availability of fast, safe and economical services to meet these increasing needs.
Mr. Webster's dictionary defines coordination in this respect as "to
bring into common action; regulate and combine in harmonious action.'
When you think of that doubling of services which President Johnson
has warned us about, you get the feeling that Mr. Webster's word isn't big enough
to describe the task. Walt Disney's writers coined a better one for the musical
"Mary Poppins." It starts out something like this: "supercalifragilistic, etc.
I can't remember all of it, but the word, itself, comprises most of the lyrics for the
whole song in the show.
There are at least two dozen Federal Departments and Agencies with
major interests in the field of transportation -- Defense, Budget, Agriculture, Commerce,
Treasury, Housing and Home Finance Agency, Federal Aviation Administration - to
name just a few.
There is a natural tendency for each of these units of Government to
pursue its own course, hew to policies which are most useful and serving to their
own responsibilities.
This, of course, can lead to fragmentation, conflict and confusion --
misallocations that we simply can not afford in the months and years ahead if we
are to forge the kind of transportation policies which enable us to make maximum
use of all the means for moving goods and people.
These varying Governmental interests must be tied together, must be
unified if we are to keep the channels of commerce flowing without waste or discri-
mination.
The Honorable Alan S. Boyd
Page 3
October 16, 1965
The ability of our transportation system to handle our own commerce
and keep us competitive around the globe is a vital part of the larger struggle we
find ourselves in today, the struggle to show the world the way to a free and open
society where man is his own master and government is his servant.
As a part of that philosophy, this administration is pursuing a trans-
portation policy which places maximum reliance on unsubsidized privately-owned
facilities, a system of transport that operates under the incentive of private profit
and responds to the checks as well as the stimuli of free competition.
Such a policy also must rely upon competition rather than regulation
to as great extent as possible consistent with the public interest. And where
regulat is necessary, broad policy guidelines are preferable to detailed
regulations of private operations, thus leaving to management the widest latitude
for exercising its own judgment and making its own decisions.
Our transportation system must remain a combination of common carrier
service available without discrimination to the general public, and it must be
equally amenable to contract carriers and private carriers as well.
To the extent possible, the users of our transportation service must
bear the full cost of those services, be they private or public in nature.
The entire system must operate as efficiently as possible without
interfering with other social or economic resources, and it must be able to support
our national security objectives in normal times and in periods of emergency.
The present system of transport has evolved without comprehensive
policy guidelines to direct it. And we are fortunate that it has brought us to the
unprecedented peak of prosperity which we enjoy today.
But it is clear that we can no longer be satisfied with such a fragmented
approach. If we are to sustain the economic pace required for full employment and
an ever increasing standard of living, we must achieve a highly-efficient, fully-
integrated, well-coordinated system of transportation.
This means removing the technological and regulatory barriers which
impede the free flow of cargo and passengers at the lowest cost, utilizing the most
efficient modes or combination of modes. This will require improvement in such
areas as joint rates, through routing and the full utilization of such concepts as
containerized freight movement.
The Honorable Alan S. Boyd
Page 4
October 16, 1965
To compete at home and around the world, we simply must be able to
take advantage of the most advanced transportation technology. In the past, the
United States has been able to improve its economic position by intensive use of
capital and the most up to date and efficient technology. The pressure of compe-
tition demands that this course be continued.
These technological advances may well have a disrupting impact on
the transportation labor force. And this will call for national policies which insure
that the drive for efficiency does not snuff out human rights. The Government and
private industry will have to meet these issues head on, will have to be ready to
deal with such problems as dislocation of workers, training and retraining -- to
a degree not witnessed thus far in our economic history.
If handled with wisdom and foresight and compassion, however, these
technological wonders can become opportunities rather than threats to the well-being
and security of our workers.
To help industry and governmental policy makers at all levels keep
abreast of new technological breakthroughs in transportation, the Office of The Under
Secretary for Transportation is engaged in a widening program of research and
development. This is imperative if we are to cope with rapid changes of today and
the increasing demands of tomorrow.
The path of progress is not always easy. It is not difficult to get
agreement on what the objectives of our national transportation policies should be.
It is something else again to gain accord on all the details of all the problems and
all the changes that ultimately will be required.
The Interagency Maritime Task Force, of which I am chairman, recently
suggested a series of policy changes designed to strengthen our merchant fleet by
making it more productive, more efficient and more responsive to foreign competition.
The Task Force report, incidentally, will be familiar to many of you
members of The Business Council, for it includes recommendations advanced by
your Maritime Evaluation Committee's report of a few years ago.
The suggested changes met stern resistance from those most concerned
with maintaining the status quo, but this has not veered us from our course.
We remain convinced that the trend to more and more subsidization
of our merchant fleet (whose share of the world's shipping business continues to
ebb) must be reversed. We are equally convinced that our fleet, to achieve the
degree of efficiency that will keep it competitive, must be the best-equipped and
most modern flotilla that we can send to sea.
The Honorable Alan S. Boyd
Page 5
October 16, 1965
This means our merchant marine must be able to utilize the latest
technology available, that automation must be accelerated at as fast a rate as
possible, that government and labor must find equitable solutions that will
permit these advances.
There is and will continue to be a need for subsidization of the fleet
to meet national security needs and help it become more modern, more efficient and
remain competitive. But it is hard to justify continuance of some of the indirect
subsidies -- such as cargo preference under which we guarantee our ships a certain
percentage of our international trade at freight rates which are higher than rates
in the unsubsidized world. In the final analysis, this simply adds to our cost of
doing business, and as I said before, we can not afford this kind of extravagance
forever.
The job of utilizing some of these technological advances is difficult
of itself without having to buck the resistance of self interest groups. The develop-
ment of more efficient and wider use of containers is a case in point here.
The most successful form of containerization in use today is the piggy-
backing of truck trailers on railroad cars.
Arbitrary rules and regulations and the defenders of the status quo
delayed piggybacking for at least 20 years. But once its advantages became clear,
it has enjoyed remarkable acceptance.
Ten years ago, the railroads carried only 168, 000 carloads of piggy-
back freight. This year the total will surpass one million carloads, and if this
sustained growth is maintained for another decade it might well transform the
entire freight carrying industry in this country.
The use of containers in our sea-going trade is in about the same
position piggybacking was a decade ago. There are some 120,000 containers of
varying sizes now in use by American shippers. Of these, about 21,000 are
engaged in sea-going trade; 7,000 of these are of standard size as prescribed by
the International Standards Association.
There have been two important developments in this field recently
which can almost be described as break-throughs. Last month, an agreement was
reached through the International Standards Association on hardware fittings for
the containers, thus ending a long, long debate. And over the past 18 months,
we have been able to get this overall maze of container planning and development
and negotiation centered in a single desk in Washington and keyed into our
National Facilitation Committee.
The Honorable Alan S. Boyd
Page 6
October 16, 1965
Our goal is to establish the simplest possible flow of continental
and inter-continental container traffic.
In early December, we will join in discussions in Geneva looking at
such problems as:
Customs penetration -- especially those procedures involving
container shipments from inland U.S. points to inland points in Europe.
Health inspection problems -- involving the handling of fruits,
vegetables, meats and other perishables and refrigerated containers.
Technical specifications -- with a view to establishing a central
registry of containers.
The marking of the containers to facilitate handling and record-keeping.
The adaptation of tariff conditions of carriers with a view to promoting
container traffic. Problems here involve the fact that containers can't be dead-
headed in the United States but can in Europe; also the fact that European containers
can't be used for our domestic hauls.
-Regulatory problems - this involves fitting the container traffic
into the foreign institutions which correspond, for example, to our own Interstate
Commerce Commission and other regulatory bodies.
--Documentation, with a view to simplification.
This documentation represents a paper barrier to integrated and
coordinated container transport. It represents one of our biggest challenges.
Today, many shipments -- container or bulk -- may require as many as 77
documents out-bound and 46 documents in-bound. These are maximum figures,
but the average is at least 15 to 20 documents.
We are planning a pilot project early next year in conjunction with
Great Britain which we hope will make some slashes into this paper barrier.
Container shipments which move from pier to pier in foreign trade
are moving rather satisfactorily. There also is a smattering of plant to plant
movement, especially by our auto manufacturers to subsidiaries abroad. Volkswagen
of Germany is active in plant-to-plant movement, too.
The Honorable Alan S. Boyd
Page 7
October 16, 1965
Still needing refinement, however, is the shipment from inland U.S.
cities to inland cities abroad. Currently, containers must be inspected at dockside
here, at dockside abroad and at the final destination. Common sense and efficiency
suggests that one inspection should suffice, but these are problems that require
long and sometimes complicated negotiations.
Undoubtedly we will eventually have to have coordinating points
around the United States -- places like Chicago, Cleveland, St. Louis and along
the coasts -- where containers can be stuffed for shipment and perhaps inspected
finally.
The National Facilitation Committee has scheduled a meeting for this
coming Tuesday in Washington with all modes of shipping to review the progress
and plan the next steps in the containerization program.
The containerization situation represents the latest and most important
development in the potpourri of transportation developments. A collection of these
kinds of related activities and developments will be necessary to produce the
fast, low cost, coordinated transportation service which is a key to our continued
domestic economic progress and world leadership in commerce.
We are making progress -- slow and painstaking as it is.
What we need, I suggest, is the same sense of urgency in our earth-
bound travels that we are applying in the race to the moon.
Down here, we are racing to the market place, and if we don't win
that contest, a victory in space may have a hollow ring.
Remarks by
The Honorable Henry H. Fowler
The Secretary of the Treasury
at The Business Council Meeting
Hot Springs, Virginia
October 15, 1965
Mr. Chairman, Members of The Business Council, Colleagues in Govern-
ment, and Gentlemen: You are more aware than most of our citizens of the inter-
dependence of the American economy and the rest of the Free World - - and the de-
pendence of both on an effective world monetary system which, in turn, depends on
the soundness and stability of the U. S. dollar.
You are familiar with the problems this nation faces in bringing its balance
of international payments into equilibrium, and the need for all the nations of the
Free World to move toward agreement on ways of assuring the financial resources and
monetary system needed to support increasing international trade and economic de-
velopment.
These financial challenges transcend the economic sphere. We must never
forget that the ability of the United States to shoulder adequately the burdens of Free
World leadership -- however unsought but now a reality -- in the political, military,
and diplomatic spheres, as well as the economic one, depends on the firm foundation
of a strong dollar and a viable Free World monetary system.
The solution of our balance of payments difficulties and the strengthening
of the international monetary system are crucial matters which must deeply concern
you as businessmen and bankers -- as they concern every American. But you have
a special responsibility for understanding and helping in meeting these challenges.
Therefore, I want to take advantage of this opportunity to bring you hard
up against the opportunities and difficulties we face together.
At the outset of my remarks, let me say of our present balance of payments
situation that I think there is undue pessimism now where there was undue optimism
earlier. In July, we were succeeding in our drive to bring our payments into sustain-
able equilibrium, the job was not yet done, and we warned of less favorable circum-
stances later in the year; in October, the job is still far from done, and the less
favorable circumstan we foresaw have become realities.
I think that debate over what improvement is needed in our international-
monetary arrangements, and how best to go about making changes, is often lamed by
inadequate discussion of the system within which our international payments are made,
and their domestic and national policy contexts. I would be the last to suppose that in
one small speech we could clarify -- let alone agree upon -- so much contentious
matter: were we to do so it would surely have to be said of us that never did so few
labor so little to bring forth so much.
The Honorable Henry H. Fowler
October 15, 1965
- 2 -
As you know, since last July, with the authorization and encouragement
of President Johnson, I have been trying to assess the thinking of the international
monetary community on the workings of the Free World monetary system, on what
needs exist for changes as the stimulus of large annual dollar balance of payments
deficits is withdrawn, and on how we could go about making needed improvements.
In talks in Washington, and in visits last month to the principal financial centers
of Western Europe, we added to our information, and assisted, I think, in increasing
general awareness and appreciation of the problem.
Finally, during the meetings in Washington late in September of the
governors of the World Bank and the International Monetary Fund -- who include
most of the Free World's monetary authorities -- procedural agreements were reached
which -- optimistically -- may make possible fundamental agreements upon sub-
stance within another year. That, in our opinion, would be timely, for we see no
problems arising within the next year that present international monetary arrange-
ments are not adequate to handle.
These would be, in essence, agreements aimed at reinforcing international
monetary stability, and at providing for the growth of reserves in good relation to
real needs for them, without reliance as in the past upon deficits by reserve currency
countries, at the same time reducing the present tendency for conflict between inter-
national and domestic objectives.
The international monetary system that we have is a very good one. Like
the improvement of it that we now seek, it was not invented, but evolved to fit evolv-
ing practical needs, economic and otherwise. It reflects the necessities of private
trade and finance, and it reflects the existence of governments with domestic and
international policies of varying kinds that must be served. It likewise reflects --
and this is primary - the growth in the Free World of a disposition to seek the means
for the solution of economic problems in an increase in the economic resources avail-
able for use - bigger helpings for all, from a bigger pie, rather than a new division
of the existing pie.
Our international monetary system stands on two pillars which, I would
emphasize, will remain unchanged. The first is stable exchange rates, based upon
the United States commitment to buy or se 11 gold at $35 an ounce. Second, inter-
national reserves include not only gold, but also foreign currency holdings -- chiefly
dollars and pounds sterling. Additionally, it is becoming common practice to count
among reserves drawing rights - rights to medium term credits -- upon the Inter-
national Monetary Fund that are virtually automatic.
Stability of exchange rates reduces the risks run by the trader and financier
operating across international boundaries more or less to the same factors business
The Honorable Henry H. Fowler
October 15, 1965
- 3 -
judgment contends with domestically. The admixture of foreign currency holdings and
credits with gold in national reserves reflects the practical desirability of holding
private and official balances in the reserve currencies of countries with production
facilities and financial institutions that have given them a leading position in the
world's trade and finance.
Two major developments since World War II have added to the system's
unfeeling heart of gold a sensory apparatus of consultation and cooperation. This
permits us not only to know when something has gone wrong, but also to find means
of correction that put the carrot ahead of the stick.
The first of these is the International Monetary Fund, established in 1945,
The Fund's principal task is to help stabilize world monetary affairs, by providing
medium term credit to smooth out balance of payments adjustments, and by promot-
ing sound international financial conduct.
The Fund's resources are increased by enlargement of national sub-
scriptions to its capital -- national quotas. The latest increase, now in process of
approval, will bring its capacities to $21 billion. Every member has virtually auto-
matic rights to borrow reserves from the IMF equivalent to 25 percent of its quota.
As I have already indicated, the unused portion of these drawing rights -- currently
some $5 billion -- have come to be counted among international reserves. The Fund
can provide other conditional credit, at its discretion, up to the full amount of a
nation's quota. This contingent type of IMF credit presently totals some $12-1/2
billion.
Secondly, upon the margins of the IMF, there has grown up since 1958 a
network of cooperative and consultative arrangements that has substantially in-
creased the Free World's ability to maintain international monetary stability. These
include the Fund's General Arrangements to borrow up to $6 billion from the Group
of Ten nations -- Belgium, Canada, France, Germany, Italy, Japan, the Netherlands,
Sweden, the United Kingdom and the United States -- just renewed for a further four
years; arrangements by which central banks swap currencies for short periods of time
to meet exchange requirements; the sale of foreign currency bonds by the United
States; the operations of an international, cooperative gold pool in London, and co-
operation and consultation carried on through such institutions as the Bank for Inter-
national Settlements and the Organization for Economic Cooperation and Development.
The Free World international monetary system has performed truly Herculean
tasks of providing required amounts of money, at the right time and place, in the post-
war era. In addition to the huge task of repairing the damages of war, the Free World
has carried out the greatest economic advance, benefitting the most people, by the
widest margin, in history.
The Honorable Henry H. Fowler
October 15, 1965
- 4 -
Moreover, the Free World monetary system has showed itself capable of
fast and effective action at time of crisis. By contrast with the 1930s, when the
world financial system could not rally a few hundred million dollars to keep it from
crumbling, on four occasions in recent years the present system has produced credits
ranging up to several billion dollars -- when necessary, in a matter of hours -- to
help the Canadian dollar, the Italian lira and the British pound.
By this type of cooperation we can -- and will-- effectively protect cur-
rencies in a temporarily vulnerable position from being tipped over by the force of
speculation. But there is nothing automatic about it: help can be denied if the
nation in question does not take action to strengthen its money. It thus is coopera-
tion and assistance that can help a nation survive attacks upon its currency from the
outside, while it insists upon correction of weaknesses from the inside.
This is a big, practical, fast and flexible international monetary system,
a system aware of its duty to protect national currencies, but never to keep them in
sin, responsible for keeping liquid funds adequate at all times to float the world's
commerce, but cautious never to sponsor a flood. It is our objective to make certain
that the system continues to evolve SO that it can discharge these tasks as well
under different conditions in the future as it has done in the past. Chief among the
differences in the future will be the fact to which I will now turn: the absence of
large annual U. S. balance of payments deficits.
Despite its many and great virtues and accomplishments, our international
monetary system stands at a crossroads. The answer, if you ask why, goes to the
heart of the matter. This is, that since 1958, United States balance of payments
deficits have supplied the principal source of additional liquidity to the world
monetary system. About three quarters of the new official reserves of other nations
have been built out of these deficits, and large foreign private holdings of dollars
have added to the potential strain on U. S. reserves. We are now well along in the
process of ending our deficits and bringing our international payments into sustain-
able equilibrium. This fact gives rise to a new situation.
The President, the Congress, and informed financial authorities around the
world all are agreed that the United States must put its international accounts in
order, and keep them SO. It must do so to preserve the integrity of the dollar at home
and abroad, SO that the more than $27 billion held in foreign official reserves and in
private commerci al hands abroad can continue to function as an essential part of the
world's monetary system. It must do SO to arrest drains of United States reserves that
have flowed from some portion of these deficits being paid off in U. S. gold. That
erosion cannot go on indefinitely. It must be, and is being, stopped now.
The Honorable Henry H. Fowler
October 15, 1965
- 5 -
That the world must know, and that the world expects, because it re-
quires that the dollar be as good as gold.
If, despite the ending of the long period of large U. S. deficits, growth is
to continue and trade is to expand, we must provide an effective and adequate substi-
tute for the creation of additional reserves, when needed.
The growth of reserves deriving from U. S. deficits has taken two forms --
dollar balances held as such, and dollars acquired and converted into gold. The
latter development, of course, resulted in a substantial decline in United States
reserves. We estimate that as of the end of 1964 more than a quarter of the official
reserves of the remainder of the Free World were held in the form of dollars.
In addition to this single lodestone fact that the necessary and desir-
able actions of the United States to correct its balance of payments situation will
soon end the process by which most additions to official reserves have been made in
recent times there is a second flaw, which is under special study by the OECD.
This is the fact that the Free World monetary system requires more satisfactory
machinery for the adjustment of payments deficits or surpluses.
A process for the adjustment of payments imbalances that could be called
satisfactory would have, in my opinion, at least two features. First, the process
would both enforce timely adjustment, and make enforcement palatable, by avoiding
harsh losses of employment or profits. Second, the process would require adjust-
ment by surplus as well as deficit nations.
At present, there is an imbalance in the system as a whole. On one side
of the scale is the fact that a deficit nation does come to a point where it must adjust
its economy or its international payments, or both, because it reaches the limits of
its reserves and of its power to borrow. On the other side is the fact that there are
no comparable limitations enforcing adjustment of its policies by surplus nations.
With primary reliance for correction by deficit nations, the path to eco-
nomic equilibrium may lead to economic restriction.
Deficit countries must, certainly, be obliged to cure their imbalances.
If they are reserve currency countries, such as the United States, loss of confidence
in their money following upon failure to end their deficits results eventually in con-
versions of the reserve currency into gold. In this process, world reserves are re-
duced because the amount of currencies held in national reserves is reduced. This,
like achievement of equilibrium by restrictive policies, is unacceptable because it
tends to depress the world economy,
The Honorable Henry H. Fowler
October 15, 1965
- 6 -
What is wanted, instead, is a circulation of reserves that facilitates the
maintenance of equilibrium at rising levels of production and trade. Let me specify
that this is an argument for sound economic growth, such as we have been experienc-
ing in this country now for years, in which incentives to save are preserved, making
possible high and rising investment to expand production and increase productivity,
in turn permitting rising private and public consumption with little or no change in
the general price level.
It is also an argument for laying an obligation upon surplus nations to
adjust their policies SO as to open the way to a return circulation of the reserves they
accumulate, This adjustment could be in the rate of domestic growth or consumption,
in foreign trade policies, in policies affecting the flow of capital to foreign parts,
including economic assistance, and in the sharing of Free World defense costs.
Such adjustments encourage the reestablishment of equilibrium, by deficit and surplus
countries alike, at higher levels of production and trade, by contrast with the groping
for equilibrium at lower levels that has SO often proved disastrous in the past.
The United States seeks no change in the international monetary system
that we have just been examining that would relieve us, or others, of the obligation
the system now imposes to bring our international payments into equilibrium. We do
seek agreement upon changes designed to permit continued growth of reserves to
underwrite the continued sound economic growth of the Free World without depending
on large and chronic United States payments deficits which might eventually endanger
the whole system. And we seek adjustment processes promoting steady and general
Free World economic growth with stable exchange rates.
I believe that the others with whom we are entering into discussion of
improvement of our international monetary system have these same fundamental ob-
jectives, even though there are deeply held differences of emphasis and approach.
I am, consequently, confident of success.
A further reason for this confidence is the fact that our own determination
can insure success in making one of the principal improvements needed in the system
as it now stands: an end to United States balance of payments deficits. I have al-
ready indicated to you our general view of our balance of payments situation at
present: we have been making good progress indicating that we are on the right tract,
we are continuing to do so, and we see no reason to think that we will not succeed
in good time by vigorous and constantly improved and refined use of our present
methods,
I will add what little detail that I can to that, without venturing onto the
shaky ground of predictions based upon incomplete and preliminary data.
The Honorable Henry H. Fowler
October 15, 1965
- 7 -
You have seen published information that our balance of payments deficit
for the first six months of 1965 was at an annual rate of $1.3 billion, compared to
$3.1 billion in 1964, both figures on a regular transactions basis. I am not in posi-
tion to confirm whether a projection of our experience in the first half of the year will
be duplicated in the second half. You are aware of our warnings that our excellent
showing in the second quarter, when there was the first quarterly surplus since 1958,
was due in part to benefits that could not be repeated, at least, in such large degree,
such as the repatriation of deposits abroad. And you are aware of our further
warnings that results for the last half of the year would reflect some unfavorable
factors that do not show in the first half, such as tourist spending abroad.
However, we must be cautious not to stretch all unfavorable factors into
the future, and neglect to project favorable influences. There are some of the latter.
While we cannot declare a trend from the experience of one or two months,
there is at least tentative good news about one of the key elements of the balance
of payments program -- export promotion. Exports in July and August were substantial-
ly better than earlier -- disappointing -- figures. Further, the information we have
to date suggests that imports, which had been rising faster than exports, may be
flattening out. Among other factors with net favorable implications is the general
strengthening of the British pound, where previous weakness had given rise to an
added drain due to the liquidation of some British government owned U. S. securities
to provide liquid assets.
We do not yet have enough information to indicate where, in this very big
and complex matter, we shall come out in 1965. But while I cannot tell you that a
deficit of $1.3 billion, or thereabouts, is what is in the cards, let me point out that
anything in the region of $1.3 billion, when all the ickens are in, would be a
very solid improvement over the 1964 deficit of $3.1 billion.
What I can say is that on present readings, this year will be far better
than last, that we expect the improvement to continue in 1966, and that we intend
and expect that it will continue for as long as necessary to bring our payments into
an equilibrium that we can, and we will, sustain.
Now, let me close with a few words about the nature of our balance of
payments deficit, because that is the controlling factor in the nature of the cure.
Our balance of payments Exficit not due to the ailment that is generally the
cause of deficits, loss of competitive power due to low productivity and rising
prices -- that is, inflationary conditions. Our productivity is high, and rising
strongly. Our prices are competitive. Our capacity to produce is easy: we can
fill orders and deliver on time. Our efficiency is all -around: industrial, agri-
cultural and even in services, where the advance of automation and mechanization
is helping us to gain upon others.
The Honorable Henry H. Fowler
October 15, 1965
- 8 -
Due to the competitiveness of our goods, our trade is large and our trade
balance is highly favorable. High and rising investment at home is keeping the
growth of capacity to produce goods and services in good relation to private and
public demand, making for extraordinary price stability underwriting continuation
of what is already by far the longest peacetime economic expansion we have ever
experienced.
Our balance of payments problem does not arise from a balance of trade
deficit that characterizes the usual payments deficit in other countries. Our dif-
ficulty arises, instead, from very large outflows of public expenditures and private
capital movements. Public expenditures abroad -- that is, foreign assistance and
the costs of external military deployment -- are instruments of national foreign.
policy. The balance of payments effects of foreign outlays of public funds have
been very sharply reduced by tying our grants and loans to the purchase of United
States products, and by many other measures, especially the reciprocal promotion
of the purchase of U. S. military supplies by governments of countries in which
there are heavy U. S. troop concentrations, such as West Germany.
In the late 1950s and the early 1960s there was an extraordinary outflow
of private capital, in response to market forces. The high level of saving in our
high income society, and ready availability of capital through highly organized
capital markets, coinciding with an upsurge of economic development in industrial
Europe, made foreign investment, both direct and portfolio, uncommonly attractive.
In this situation, which is totally unlike the conditions of the classic
balance of payments difficulty, the basic and classic cure -- rising interest rates
in the deficit country -- cannot be the sole and simple answer. We have taken
monetary policy action to moderate the differential in the short term area: the
Federal Reserve Board discount rate increases of 1963 and 1964 are cases in point.
However, the difference between long term interest rates here and in Europe is so
great that an attempt to eliminate capital outflows through tight money policy at
home could only result in jeopardizing the long and sound business expansion we
are experiencing.
The program we have adopted is the program needed by the United
States, tailored to its highly unusual balance of payments trouble. It is, in
skeleton, the use of tax and monetary policy to increase the profitability of in-
vestment and to increase the demand for investment in this country by keeping
economic growth high and rising in conditions of price stability; reduction, by the
methods I have already mentioned, of the growth of net dollar balances abroad due to
foreign assistance and military operations; promotion of exports and reduction of im-
ports by fair competitive methods that do not invite a deterioration of good trade re-
lationships; and finally, voluntary programs for the maintenance of private investment
The Honorable Henry H. Fowler
October 15, 1965
- 9 -
abroad by American banks and other business at levels that do not make a U. S.
balance of payments uilibrium achievable only by a withdrawal of U.S. political,
military and diplomatic power from its role in world affairs.
In the background of the voluntary program is the Administration's desire
to operate its overall balance of payments program with the least possible inter-
ference in private economic decisions. The voluntary program keeps government in
its proper role and lets business perform its function: government -- as government
alone can do -- decides what is national policy and sets the national goals; business --
as only business can do expertly -- is left free to make its many and varied individual
decisions as to how to operate consistently with national policy and to contribute to
the achievement of national goals.
I do not know if the business community is doing as much as it can, as
fast as it can, to increase its exports, and to hold its foreign investment to levels
that will assure an equilibrium in our balance of payments. I am not sure we in
government have done all that we can do to provide you with guidelines that can be
evenly applied to achieve the national objective under competitive conditions. What
is certain is that you, and we, must be willing to do more, willing to refine our pro-
cedures, willing to enlarge the scope of our activities, and willing to innovate, to
achieve and maintain an equilibrium in our balance of payments for as long as the
dollar is a key currency in the Free World monetary system.
For -- let me repeat in closing -- we are determined to master the balance
of payments situation, because continued deficits would destroy confidence in the
dollar, including confidence in your investment dollars. And we are determined to
solve the balance of payments problem with the least possible impact on freedom of
economic choice. That is why making a success of the voluntary program is so
important.
Comparative Analysis of
The "New Economics" and Johnson Economics
Prepared for
The Planning and Research Committee
House Republican Conference
August 30, 1966
GERALD ANVRSIT ? FORD
- 10 -
spending These early policies (with which almost all
Republicans agreed and which they supported) have now been
followed by policies grounded in political expediency which
threaten both the health and basic structure of the American
economy.
GERALD FORD LIBRARY
I INTRODUCTION
This paper is designed to explore some basic themes in the field
of economic policy which should be of interest to Republican Members of
Congress in analyzing recent economic policies of the Johnson Administra-
tion. It is not intended as a definitive critique of Kennedy-Johnson
policies as this would require a longer and much more detailed paper.
Instead, this paper is limited to 10 pages in the hope that it will be
useful to Members in developing positions on current economic issues and
trends.
II "The New Economics Based on Keynes"
In the December 31, 1965 issue, Time had a six page cover story on
John Maynard Keynes analyzing "the new economics based on Keynes." The
first headline of the story quoted economist Milton Friedman (a Goldwater
advisor in 1964) as saying, "We are all Keynesians now." Even more than
the article itself, the fact of a cover story on Keynes is highly signifi-
cant.
What is the "new economics" and how wide is the concensus" about it?
In many respects, the "new economics" is the old economics "souped up."
Its major premise is that we must be aggressive in using macro-economic
policy (i.e. broad fiscal policy tools, and to a lesser extent, monetary
policy as well) to maintain a steady, non-inflationary rate of economic
expansion. It looks to the postwar Euopean experience (mainly France,
Germany and the Scandinavia countries), citing their non-recessionary
growth paths as evidence of the effectiveness of determined government
LIBRARY
- 2 -
economic policies. Its main quarrel with the past is not necessarily
that we have done the wrong things, but that we have not done enough
of the right things. The Time article defined as Keynes' central theme
that
the modern capitalist economy does not automatically
work at top efficiency, but can be raised to that
level by the intervention and influence of the
government.
Moreover, he argued the government can do this
without violating freedom or restraining competition.
And further on the role of government,
It can, he said, achieve calculated prosperity by
manipulating three main tools: tax policy, credit
policy, and budget policy. Their use would have the
effect of strengthening private spending, investment,
and production.
It is important in understanding "the new economics based on Keynes"
to realize that Keynes himself was mainly concerned with the up side of the
business cycle. His major book, The General Theory, was published in 1935,
when the world was struggling to rise from the depths of depression.
Understandably, Keynes' prescriptions were designed primarily to spur
economic growth. He was not nearly so concerned with the other side of
the equation -- the need at times to damp down inflation and prevent an
overheated economy from going into a runaway boom. One practitioner of the
* For those interested in a comparison of the postwar economies of
France, Germany, England, and the United States, an excellent new book is
available, Modern Capitalism by Andrew Shonfield. Though the author takes
an extremely liberal view as far as American policies are concerned, this
survey by a highly knowledgeable writer provides an unusually good per-
spective on the broad field of government economic policies. (Oxford
University Press, 1965)
GERALD LIBRURY FORD
- 3 -
"new economics", Walter Heller, has called attention to the obvious point
that to be effective the "new economics" must work both ways.
It should be made perfectly clear that Keynes is
a two-way street. In many ways we're entering
a more fascinating period than the one I faced.
Essentially the job is to maintain stability
without resorting to obnoxious controls as we
did in World War II and Korea.
Needless to say, the basic problem with Johnson economics is that it
does not work both ways. Pleas by Heller (and many others) for restraint
early in 1966 were disregarded. Part III of this paper examines this
and other aspects of the Johnson economics, stressing the theme that the
trouble today is not with "the new economics based on Keynes,' but with
bad economics based on Johnson.
Before proceeding to Part III, it is necessary to make two important
points about the way in which the "new economics" works in actual practice.
1. Choice of Instruments
The "new economics" leaves open the choice of instruments.
It merely says that we must use government policy to maintain a
steady path of equilibrium growth, but the question of which policies
to use under any given set of conditions is left up to policy-makers
to decide. A liberal economist might as a general rule be expected
to favor public expenditure increases to stimulate growth and tax
increases to slow it down. A conservative might just as easily favor
tax cuts to stimulate private sector growth and public expenditure
restraint to damp down inflationary pressures. Both groups, as far as
GERALD FORD
- 4 -
professional economists are concerned, would undoubtedly be flexible,
recognizing that the choice of instruments is a political choice.
The economics involved simply concern the need to use some instrument
under conditions where the failure to act would mean going off a path
of long-run growth without inflation.
2. Timing of Policy Initiatives
The timing of the application of government policy is one of
the trickiest questions of economics, and is one on which economists
can be expected to disagree without reference to differences in their
political viewpoint. The reason for this is a practical one. There
are today important limitations on our ability to forecast accurately
economic trends on which basis policy decisions must be made. The
answer given by some observers is to give up the whole idea of the
"new economics." Others stress the need for funds to improve and
expand statistical services and thereby advance the art and science
of forecasting. Most economists rejecting the pessimistic view --
)
would be likely to agree that if we are reasonably flexible in the use
of policy, we can correct for errors in our expectations as we go along,
while still doing all that we can to make the best use of the best
available economic forecasts.
This description in Part II of the "new economics" is intended to give
a broad view of its meaning, its limitations, and the type of public recog-
nition and acceptance which it has received. Some will disagree basically
with the whole Keynesian interventionist approach, maintaining that a free
GERALD FORD ( BRAP )
- 5 -
economy must be left to adjust itself to conditions as they develop. One
conclusion of this paper is that Republicans should not argue for or against
the "new economics," but that they should concentrate instead on the
failures of the economic policies of the Johnson Administration.
Many can agree on the proposition that economic policies should be
used to keep the nation on a steady long-run non-inflationary growth path.
That the Johnson Administration has failed to do this is a failure of
Johnson economics not necessarily of the premises and objectives of
"the new economics based on Keynes."
III JOHNSON ECONOMICS
Johnson economics is essentially a policy of political expediency.
It does not recognize the importance of two-way economic stabilizing
policies,
In a nutshell -- if the government is to be responsible for stepping
on the accelerator when the economy is lagging, it must also take its foot
off when the pace of an economic advance increases to the point where the
danger of overheating exists. The Administration's willingness to do the
politically popular act (cut taxes), but not to use restraint in fiscal
policy when called for, violates the "new economics," the old economics,
and good sense.
A11 of this, of course, assumes that there was substantial professional
and informed opinion in favor of restraint in early 1966, but that the
Administration ignored this concensus (a phenomenon which it otherwise
respects) because of fear of the political consequences. We turn now
FORD of LIBRARY GERALD
- 6 -
a survey of the views of leading economists as expressed in the early
part of 1966.
In March, the Washington Post polled leading economists, and of the
30 who replied, 22 "favor (ed) an immediate tax increase." The supporters
of a tax increase included many leading economists generally regarded as
sympathetic with the Kennedy-Johnson Administration. Walter Heller,
recently resigned as Chairman of the President's Council of Economic
Advisors, was one of the strongest advocates of tax increase during this
period. The same position was taken by John K. Galbraith, Paul A. Samuelson,
James Tobin of Yale (formerly a member of the CEA), Joseph A. Pechman,
Professor E. Cary Brown of M.I.T., and Professor Harvey Brazier of the
University of Michigan.* The ny Times also reported on March 13 that three
out of four of the former Chairmen of the CEA favored tax increases or
reduced spending. This included Heller, Arthur Burns, and Raymond Saulnier.
Moreover, in separate reports on the President's 1966 Economic Report, both
the Republican and Democratic members of the JEC saw a need for tax
?
reduction.
** Three members of the Federal Reserve Board (Chr. Martin,
Robertson, and Dane) publicly supported a tax increase in or prior to May
Ut
of this year, as did Pierre-Paul Schweitzer, managing director of the
International Monetary Fund.
*
New York Times
** New York Times, March 13, 1966, III, p. 1.
FORD & LIBRARY GERALD
- 7 -
Turning Among to private business economists, the same general views were
expressed. Charls Walker, executive vice president of the American Bankers
Association, said the "preponderance of opinion" was for "a combined
spending cut and tax increase,' which he said "should add up to a net
impact of $4 billion - $6 billiom in the coming fiscal year." *
Roy Rierson, senior vice president of the Bankers Trust Co., regarded the
situation as so tight and the overheating so evident that a tax increase
is clearly called for. " ** William F. Butler, vice president of the
Chase-Manhattan Bank, said he expected a tax increase because "as disagree-
able as tax increases are, they are preferable to inflation. " It
is
interesting to note the similarity between Butler's statement and the
following.
"If it should turn out that additional insurance
(against inflation) is needed, then I am convinced
that we should levy higher taxes rather than accept
inflation -- which is the most unjust and capricious
form of taxation.'
This quotation is from President Johnson's 1966 Economic Report! Yet, when
the time of decision came (when rhetoric like this would not suffice), the
President ignored this "concensus" for fiscal policy restraint -- a concensus
described as follows in the New York Times.
"By now, a wide range of economists, bankers and
others are calling for a tax increase to help finance
the arms buildup in Vietnam and restrain inflationary
forces in the economy." (March 13, 1966, III, P. 1.)
* Ibid.
** Ibid.
*** Ibid.
GERALO FORD LIBRAR
- 8 -
Arthur Burns strongly criticized this lack of restraint in Administra-
tion economic policies in a talk which he made before the House Republican
Conference in July of this year. Burns was especially critical of what
he called "a great new wave of government spending which began in the
spring of 1965,"
...
a hugh increase in Federal spending took place
precisely at the time when governmental spending on
domestic programs should have been restrained to help
finance the larger military outlays abroad; or if a
cutback in civilian expenditures was not feasible,
then taxes should have been raised.
The overheating of the economy we are experiencing today is the price
we pay for the Johnson Administration's) lack of political courage. To
put this criticism into specific terms, the following points can be made:
1. The Johnson Administration did not live up to its own
economic policy promises. Witness the following from the
President's own 1965 Economic Report.
"Federal budgetary and monetary policies must
not permit a generalized excess of demand over
supply to pull up prices.
*
2. The Johnson Administration refused to use either of the
two strongest and most effective instruments of restraint
(tax increases and/or expenditure restraint) at a time when
many prominent and politically friendly economists were
urging that this be done.
* Economic Report of the President, January 1965, p. 12.
GERALD FORD (BRAP)
- 9 -
3. They relied entirely on monetary policy (a route they
took only reluctantly) to stem the advance of the economy
fired by strong performance in the private sector and in
the face of lower taxes and higher spending in the public
sector. Here, the real losers are potential home buyers,
pensioners, and those living on fixed incomes, against whom
this heavy reliance on monetary policy discriminates.
4. Even the weak and controversial "guideposts" (which never
should have been used in the first place) were jettisoned for
political reasons. With even the "guideposts" gone, the
Administration fell back exclusively on the old jawboning
approach.
5. But, reading between the lines, the Administration's
policy today boils down to -- "take all you can get this year,
boys, because after the election, there'll be price controls!"
6. Thus, the failure to use fairly limited restraining action
when needed may put the Administration in the position where
they soon will be calling for sweeping controls and economic
reforms which could do irreparable injury to the competitive
enterprise basis of the American economy.
7. This economic policy failure of the Johnson Administration
is all the more tragic because it follows on the heels of initial
successes (the tax cut of 1964 and the pre-1965 policy of Federal
FORD
BRAR
AN ADDRESS BY REP. GERALD R. FORD, R-MICH,, BEFORE THE BUSINESS COUNCIL, OCT. 22, 1966
Ladies and Gentlemen:
I am very happy to be here with you, and to demonstrate my pleasure I am going
to let you in on a new economic theory advanced by a news reporter friend of mine.
Over a long period of time this newspaper chap has studied the length of women's
skirts. This was a scientific project, mind you, and so he took notes on all of his
observations. Recently he confided to me the results of his study. He said that by
close and unceasing hemline watching, he had come to an unshakable and unswerving
conclusion.
That conclusion was that the hemline of women's skirts rises in good times--you
know, things are looking up, as they say--and the hemline falls in bad times.
My friend says he has charts to prove his point. His charts reveal that the
hemline began sneaking upward about 1912 when it reached the middle of the calf. In
the 1920's it kept inching up. And by 1927, girls who blush easily were afraid to
sit down. My friend says those were real good times.
When the stock market dropped into the cellar in 1929, hemlines fell, too. The
outlook was really depressing in the early 1930's.
Since then there has been an upward trend in hemlines except for some sag in
recession years.
Is there really something to my friend's theory?
Judging by what's happened in the stock market lately, I have the feeling his
hemline idea doesn't really hold up. Or maybe government officials have been keeping
too close an eye on hemlines instead of on the Dow-Jones averages.
In any case, I don't believe that all wisdom resides in the Executive Branch
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GERALD FORD LIBRARY
-2-
BUSINESS COUNCIL SPEECH
of the Federal Government.
That
of
?
recommibility and control the Executive Branch look to you men of the Business
Gouncil for
But neither do I agree with the inference of some that all elective officals
are blokes, incapable of sound judgment and totally dedicated only to getting them-
selves reelected.
The Inscutive Branch and the Nation can profit by your advice. The Nation
?
would suffer without--the aggregate voice of the Congress Ache
United States.
It is often said that the President proposes and the Congress disposes.
There are some who are impatient and irritated with the legislative process.
They look upon those in the Executive Branch as men endowed with great expertise,
bending their every effort toward the greatest good for the greatest number. Such
men, they believe, can do no wrong.
I come before you not to cast doubt on the motives of anyone in the Executive
Branch of the Government. But I submit that Congress needs a Defender; I have cast
Fill
gran,
1
your
Myself in that role today. Admittedly there may be a bad apple in the bushel, but
regorming
that is equally true of business, the professions or labor.
I deny that there is a need or necessity for the demise, the neat burial of the
legislative process, as some would advocate or fondly wish.
I contend that the legislative process has much merit. I suspect that some in
the audience tonight would heartily agree.
They know it was the Executive Branch which wanted broader powers to dictate of control
FOR automobile industry efforts in the safety field. They know it was the Executive Branch
GERALD
which LIBRAN sought sizable federal funds to impose its imprint on auto research, design
(MORE)
-3-
BUSINESS COUNCIL SPEECH
and production. And they know it was the Congress which resisted those White House
demands and shaped an auto safety program the industry could live with and more
drivers could live by.
They know, too, that the Executive Branch has a clever penchant for taking so-
called public interest legislation and wrapping it into a good-guy package. The
legislative package may be seriously flawed, but it defies criticism because of the
label.
h
which had White blessing prosure from —
Some may have guessed I am talking about the truth-in-packaging bill. How can
you oppose or seek to modify legislation labeled "truth in packaging?" Yet some
members of Congressshad the courage to do-so. This I believe was for the public good.
remite bal legalation promoted bythe Eventive Brank
Maybe some in this audience would agree.
Business is part of the public. Retailing and packaging are part of business.
"Truth in Packaging" was legislation which seemed to give both business and the public
a black eye. Business in effect was accused of deception, per se. The public, the
housewife particularly, was accused of stupidity, or blindness in buying.
I am not arguing for the maxim, "Let the buyer beware." But I am arguing against
a return to the old practice of making businessmen villains so greedily interested in
profits that they employ every possible device to deceive the consumer.
Congress--particularly, the House--modified the truth-in-packaging bill to
eliminate unwarranted interference by government with reasonable business procedure.
Business, and the public, can be thankful Congress was brave enough to stand up to the
White House on this point.
elected
Indeed, is it not beneficial to the Nation that the representatives of the people
have served as a check rein on the President and his advisers?
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-4-
BUSINESS COUNCIL SPEECH
At this point, I cannot resist having a little fun with some of the President's
spokesmen.
I am confused by their comments about this Congress. They are united in
disagreeing with Congress--but they disagree for totally different reasons.
Chief economic adviser Gardner Ackley, who incidentally is from my State of
Michigan, criticized Congress at a commencement address at my alma mater for
appropriating too much money. Such action was bad--it was adding fire to the flames
of inflation. 2aqu.
William Gaud, administrator of the Agency for International Development, has
bemoaned congressional cuts in the foreign aid program.
These fellows really ought to get together. This is a good time for them to do
SO. They are both your guests at this conference.
Another gentleman who is not on your guest list also has sharply criticized
your
Congress for being overly generous with federal appropriations, and I agree whole-
heartedly.
President Johnson has lamented that his Democratic Congress was adding anywhere
from $2 to $8 billion to his non-military budget in non-critical items, making an
increase in personal and corporate income tax not just possible but probable.
At a press confernce as long ago as last April 22, Mr. Johnson said of the
Congress: "Our problem is to keep Congress from appropriating far in excess of the
budget."
Yet on Oct. 13 the President returned from the political campaign trail with
this outburst of praise for the Congress: "From what I have seen in the country,
I think we are going to have the best Congress in the history of this Nation
GERALD WHENFORD LIBRARY
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-5-
BUSINESS COUNCIL SPEECH
we finish our record this session. The 89th Congress, my prediction is, historians
will record as the Great Congress."
The 89th Congress might have been a great Congress, but Mr. Johnson's Texas
style of oratory hardly fits the facts.
His sober and sensible statement of last April 22, repeated many times later
in the session, came closer to the mark. Congress should have held down spending.
There are, of course, merits and demerits in nearly every performance, and
this is true of Congress as well as the Executive Branch.
Let me recite for you a few congressional pluses.
The record clearly shows excessive spending in the anti-poverty program. The
.n
House, after much debate, imposed a $7,500 ceiling on expenditures per enrollee in
the Job Corps. The average outlay per enrollee now is $9,120.
The record also clearly shows that in most cases local anti-poverty programs
are being run almost exclusively by the paid employees although maximum representa-
tion by:/the poor is called for. The House now has laid down the requirement that
the poor have one-third representation in local community action groups.
Perhaps I will be forgiven for adding that it was primarily through the efforts
of the minority that these reforms were accomplished. It was also because of
minority pressure that the total anti-poverty authorization for fiscal 1967 was
held to the $1.75 billion figure requested by the President.
Thus Congress often focuses on program flaws and prescribes a remedy.
I mentioned earlier that the Executive Branch is not the sole repository of
wisdom in Washington or the Nation.
I submit that information and opinions gathered and disseminated on Capitol Hill
GERALD
LIBRAR.
(MORE)
-6-
BUSINESS COUNCIL SPEECH
are invaluable to the Executive and to the people. Public hearings by committees
develop facts and implications which are essential to sound legislation.
In fact, there are times when I believe the legislative committees and individual
congressmen can offer better advice to the White House than that emanating from its
so-called expert advisers.
Unfortunately, that advice is often spurned.
We in the Congress have been watching with great interest this nation's experi-
ment in the New Economics. We know that in many respects the "New Economics" is the
old economics "souped up," used when politically advantageous; ignored when there
are
is a political
puttalls
Its major premise is that we must be aggressive in using broad fiscal policy
tools--and to a lesser extent, monetary policy as well--to maintain a steady, non-
inflationary rate of growth in the economy. Its main quarrel with the past is not
necessarily that we have done the wrong things, but that we have not done enough of
the right things at the right time.
I subscribe to John Maynard Keynes's theory that the modern capitalist economy
does not automatically work at peak efficiency and can be properly accelerated by
wise and timely governmental action. But I also believe that this should be done
without violating freedom or restraining proper competition.
The three main tools in the Keynesian economic chest are tax policy, credit
policy and budget policy. It is intended they be used to strengthen private spending,
investment and production.
But while Keynes was primarily concerned with the "up" side of the business
cycle, he also warned against inflation and the debasing of a nation's currency.
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-7-
BUSINESS COUNCIL SPEECH
Dr. WalterHeller, former chairman of the President's Council of Economic
Advisers, has warned that to be effective the New Economics should work both ways.
Said Heller, recently: "Essentially the job is to maintain stability without
resorting to obnoxious controls as we did in World War II and Korea."
We have in Congress a gentleman who is extremely knowledgeable in the field of
economics-- Rep. Tom Curtis of Missouri, an outstanding member of the House Ways and
Means Committee and the Joint Economic Committee.
Curtis, perhaps more then any other member of Congress has, like Heller,
sounded the warning that the New Economics is a two-way street.
He and Heller were among those who early this year recognized the peril of
increasing inflation and pleaded for restraining action by the Administration.
The Administration disregarded pleas by Heller, Curtis and many others for
restraint early in 1966. Consequently We are in trouble today. Our trouble is not with
Keynesian Economics but with Johnson Economics.
What is the failed failing in the Johnson Economics? It is a paralysis of policy,
has
"
a reluctance to make timely application of tax, credit and budget policy when that
application becomes politically painful.
It's true that timing of government economic policy is a difficult question.
It is one on which economists can be expected to disagree regardless of their
political loyalties.
But having said that let me cite a survey of the views of leading economists
made in early 1966 by the Washington Post.
The Post polled these economists in March. Of the 30 who replied, 22 favored
an immediate tax increase. The 22 included Dr. Heller, John K. Galbraith,
GERALD FORD LIBRART
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-8-
BUSINESS COUNCIL SPEECH
Paul A. Samuelson, James Tobin of Yale, formerly a member of the Council of Economic
Advisers, Joseph A. Pechman, Prof. E. Cary Brown of M.I.T., and Prof. Harvey Brazier
of the University of Michigan, a former Treasury official.
The New York Times reported on March 13 that three out of four former chairmen
of the Council of Economic Advisers favored a tax increase or reduced spending.
Those holding these views were Dr. Heller, Arthur Burns, and Raymond Saulnier.
when?
March17
Commenting in separate reports on the President's 1966 Economic Report, both
Date.
the Republican and Democratic members of the Joint Economic Committee saw the need
for a tax increase.
Three members of the Federal Reserve Board--Chairman Martin, Mr. Robertson and
Mr. Daane, came out for a tax increase in or prior to May of this year. So, too,
did Pierre-Paul Schweitzer, managing director of the International Monetary Fund.
The same general views were expressed among private economists.
Charles Walker, executive vice-president of the American Bankers Association,
said the "preponderance of opinion" favored a "combined spending cut and tax increase."
Roy Rierson, senior vice-president of Bankers Trust Co., viewed the situation
as so tight and the overheating of the economy as so obvious that "a tax increase
is clearly called for."
William F. Butler, vice-president of Chase-Manhattan Bank, said he expected a
tax increase because "as disagreeable as tax increases are, they are preferable to
inflation."
Please note the similarity between Mr. Butler's statement and this quotation
Date.
from President Johnson's 1966 Economic Report:
"If it should turn out that additional insurance (against inflation) is needed,
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GERALD 1888817
-9-
BUSINESS COUNCIL SPEECH
then I am convinced that we should levy higher taxes rather than accept inflation--
which is the most unjust and capricious form of taxation."
Yet when the time of decision came-shall we say in March--the President ignored
this consensus for restraint through the use of fiscal policy--either a reduction in
non-essential, non-military spending or a tax increase. He in effect turned his back
on the New Economics in favor of his own brand--a dangerous mixture of politics and
economics. It was a return to the old economics. The economics of ups and downs
in the economy, the economics of boom, inflation, recession and perhaps even depression.
Said the New York Times editorially on March 13:
"By now, a wide range of economists, bankers and others are calling for a tax
increase to help finance the arms buildup in Vietnam and restrain inflationary forces
in the economy."
Mr. Johnson ignored those voices. He spurned the pleas of some of the nation's
foremost
economists. He turned a deaf ear to the advice of Congress's Joint
Economic Committee.
Yet what did leading Administration spokesmen tell the Business Council approxi-
mately one year ago today?
shorows
Some of you men had voiced concern about inflation, and this is what Vice
President Humphrey told you then:
"We must provide for whatever expansion of our defense expenditures the situation
requires. But we see no present likelihood that expenditures will rise enough to
bring the threat of inflation. If they did, the President of the United States
would take appropriate fiscal and monetary action and budgetary action to throttle
that inflation. I can assure you of that tonight. Have no doubt about it."
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-10-
BUSINESS COUNCIL SPEECH
I ask you--has effection governmental action been employed to throttle inflation? Or do
the kind described by Th V.P. V.
continuing
we continue to have steady and insistent evidence of inflationary pressures in the
economy?
Mr. Ackley last October told you that either a lagging economy or an overheated
one would be dealt with by the Government.
He said the Government has "both the weapons and the will" to keep the economy
going "within noninflationary bounds."
Mr. Ackley not only predicted price stability, he even said another tax cut was
?
possible in 1966. When he spoke, the Consumer Price Index stood at 110.2. Less than
a year later--in August--the Index had climbed to 113.8.
Burners
-You Council members had indicated as you went into your October 1965 meeting
that you considered inflation the principal threat to the economy. You were also
concerned, of course, about the continuing serious deficit in the balance of payments.
The
made by its spokesman
The Johnson Administration did not live up to its promises. The Administration
refused to use either of the two strongest and most effective instruments of
restraint--an income tax increase or spending reduction, when the time for such
restraint arrived in March of this year.
Except for accelerated tax withholding and partial suspension of excise tax
during The first 9 months 81966
reductions, the Administration placed the entire burden of fighting inflation on
monetary policy. When the Federal Reserve Board initially raised the rediscount
rate last December, the Administration criticized the action as untimely.
The Administration even jettisoned its controversial wage and price guideposts
by indulging in the fiction that the presidentially-endorsed proposal for settling
the Airline Strike was non-inflationary.
GERALD FORD LIBRARY
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-11-
BUSINESS COUNCIL SPEECH
In August Republican members of the Joint Economic Committee tried to jog the
Administration into action. But the Committee majority rejected the minority's call
for hearings on the state of the economy. Committee Chairman Wright Patman said it
was time for action, not a study. Mr. Curtis and other minority members agreed.
Said Mr. Curtis on Sept. 2: "If spending is not cut by an adequate amount,
then there must be a tax increase. There may be merit to the suggestion that the
investment tax credit be suspended, but the fact is that the Treasury Department
itself feels this would have little or no impact on the immediate situation. As for
monetary policy, we can only say that shedding tears over high interest rates comes
with ill grace from those who forced monetary policy to carry the whole burden of
restraining inflation by opposing fiscal tightening through reduced government
spending. The problem is in the White House, not the Capitol."
It was the 45-year high interest rates that finally jarred the President out
of his paralysis on economic affairs.
There appeared danger of financial panic in which borrowed money could not be
had at any price, and in which both stocks and bonds would find no buyers.
Whether this danger was imagined or real, it worried the President. The
result was the President's announced intention to fight inflation through alleged
spending cuts and suspension of the 7 per cent investment tax credit. The announce-
ment was predictable. It was politically the least painful of any of President
Johnson's options.
The minority had urged early this year that priorities be assigned to domestic
spending. Admit, begged of the Administration, tradamit that we are at war and that war
wipoolded
costs many billions.
GERALD FORD LIBRARY
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-12-
BUSINESS COUNCIL SPEECH
The President's decision--that we could afford both the Vietnam War and
n charted
expansion of Great Society programs by $3.2 billion--projected the course taken
by the 89th Congress this year.
Senate Majority Leader Mike Mansfield, in a statesmanlike comment in September
of 1965, said that Congress in its next session should "spend less time on new
legislation and more time correcting oversights in legislation we have just passed."
He added: "We have passed a lot of major bills at this session, some of them
very hastily, and they stand in extreme need of a going-over for loopholes, rough
corners, and particularly for an assessment of current and ultimate cost in the
framework of our capacity to meet it." If Brnl 2 my 4 Address came
home 1 with a report like that it would be failing grade. mift wen get
The Nation and the Congress last January expected the President to deal
school.
primarily with Vietnam in his 1966 State of the Union Message. Instead the President
reeled off a new and lengthy list of legislative objectives and plunged ahead with
his Great Society.
There was, of course, no plugging of loopholes in 1965 legislation, no rounding
off of rough corners, no true "assessment of current and ultimate cost in the
framework of our capacity to meet it." Again it was a case of the Presidential tail
wagging the congressional dog.
Congress made some improvements in Great Society legislation but, clearly,
Congress should do better.
We have a blueprint for Congressional Reform. It was drawn by a Joint Committee
on Organization of Congress, a group of six Democrats and six Republicans have
endorsed the committee's recommendations. Unfortunately, Democratic leaders have
resued to go along.
BRAR
Some Americans believe that every measure sent to Congress by the White House
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-13-
BUSINESS COUNCIL SPEECH
should be enacted. They react angrily when Congress rejects a presidential proposal.
I submit that some of Congress's greatest accomplishments are the rejection of
ill-advised presidential requests.
One such was President Johnson's recommendation of four-year terms for members
of the House of Representatives.
If Congress had approved that request, the power of the people to control their
Government would have been reduced by 50 per cent. If House members were handed
Bank
Increased
four-year terms, the Executive could be assured continued control of Congress.
The Johnson Administration has insisted on substituting rhetoric for realism
in the management of our nation's affairs. The President insists that the best
politics is the best economics--a most dangerous view, in my opinion.
The 89th Congress may not be a fair example of a Congress that can influence
the President and help shape his policies. But this is the task for which Congress
is needed. The Nation must look to Congress to shake the stars out of this Admini-
istration's eyes and bring it back to reality, bring it back to the people.
###
FORD & LIBRART GRRALD
Insert on Page 4
Chief economic adviser Gardner Ackley, who incidentally is from my
home state of Michigan, criticized Congress last August 7 in a commencement
address at Ann Arbor for appropriating too much money.
Said he: The more common view of those attacking the current monetary
policy is that we should merely loosen up on credit without tightening fiscal
policy. Equally disturbing to me is the apparent readiness of many in the Congress
to a dd vast sums-up to $5 or $6 billion--to their favorite civilian
expenditures programs without eitheremziangxbxokx cutting b ack other
expenditures, or facing up to the probable need to offset the inflationary
impact by higher taxes."
GERALD FORD LIBRARY
-1-
Dr. Prindergast
AN ADDRESS BY REP. GERALD R. FORD, R-MICH., BEFORE THE BUSINESS COUNCIL, OCT. 22, 1966
Ladies and Gentlemen:
I an very happy to be here with you, and to demonstrate my pleasure I am going
to let you in on a new economic theory advanced by a news reporter friend of mine.
Over a long period of time this newspaper chap has studied the Length of women's
skirts. This was a scientific project, mind you, and 80 he took notes on all of his
observations. Recently he confided to se the results of his study. He said that by
close and unceasing hemline watching, be had come to an unshakable and unswerving
conclusion.
That conclusion was that the healine of women's skirts rises in good times-you
know, things are looking up, as they say--and the hemline falls in bad times.
My friend says he has charts to prove his point. His charts reveal that the
homline began sneaking upward about 1912 when it reached the middle of the calf. In
the 1920's it kept inching up. And by 1927, girls who blush easily were afraid to
sit down. My friend says those were real good times.
When the stock market dropped into the cellar in 1929, homlines fell, too. The
outlook was really depressing in the early 1930's.
Since then there has been an upward trend in hemlines except for some sag in
recession years.
Is there really something to my friend's theory?
Judging by what's happened in the stock market lately, I have the feeling his
homline idea doesn't really hold up. Or maybe government officials have been keeping
too close an eye on homlines instead of on the Dov-Jones averages.
Abrupt
In any case, I don't believe that all wisdom resides in the Executive Branch
FORD s LIBRARY GERALD
(MORE)
BUSINESS COUNCIL SPEECH
-2-
of the Federal Government. That's one reason men occupying positions of great
responsiblity and control in the Executive Branch look to you men of the Business
Council for advice.
But neigher do I agree with the inference of some that all elective officals
are blokes, incapable of sound judgment and totally Andiested only to getting them-
selves reelected.
The Executive Branch--and the Nation-can profit by your advice. The Nation
needs--indeedit would suffer without--the aggregate voice of the Congress of the
United States.
It is often said that the President proposes and the Congress disposes.
There are some who are impatient and irritated with the legislative process.
They look upon those in the Executive Branch as men endowed with great expertise,
bending their every effort toward the greatest good for the greatest number. Such
men, they believe, can do no wrong.
I come before you not to cast doubt on the motives of anyone in the Executive
Branch of the Government. But I submit that Congrees needs a Defender; I have cast
myself in that role today. Admittedly there may be a bad apple in the buchel, but
that is equally true of business, the professions or labor.
I dany that there is asso occussity of the
and who
legislative
1
some would advocate or fondly wish
that Cougress be
streamlist in the Alope of a rubber stamp for the Executive.
I contend that the legislative process,
I suspect that some in
innecessary to protect tre puble from
the audience tonight would heartily agree,
rask action,
They know it was the Executive Branch which wanted broader powers to dictage
automobile industry efforts in the safety field. They know it was the Executive
GREATO Branch FORD LIBRARY
which sought simble federal funds to impose its imprint on auto research, design
BUSINESS COUNCIL SPEECH
-3-
and production. And they know it was the Congress which resisted those White House
demands and shaped an auto safety program the industry could live with and more
drivers could live by.
They know, too, that the Executive Branch has a clever penchant for taking se-
called public interest legislation and wrapping it into a good-guy package. The
legislative package may be seriously flawed, but it defies criticism because of the
label.
Some may have guessed I an talking about the truth-in-packaging bill.
How can
you oppose or seek to modify legislation Labeled "truth in packaging?" Yet some
members of Congressshad the courage to do so. This I believe was for the public good.
Maybe some in this audience would agree.
Business is part of the public. Retailing and packaging are part of business.
"Truth in Packaging" was legislation which seemed to give both business and the public
a black eye. Business in effect was accused of deception, per se. The public, the
housewife particularly, was accused of stupidity, of blindness in buying.
I am not arguing for the maxim, "Let the buyer beware." But I an arguing @gainst
a return to the old practice of making businessmen villains so greedily interested in
profits that they employ every possible device to deceive the consumer.
Congress--particularly, the House--modified the eruth-in- packaging bill to
eliminate unwarranted interference by government with reasonable business procedure.
stood
Business, and the public, can be thankful Congress
1
up
to
the
White House on this point.
Indeed, is it not beneficial to the Nation that the representatives of the people
have served as a check rein on the President and his advisers?
FOR 8.07483 LIBRARY 0748
(MORE)
-4-
BUSINESS COUNCIL SPEECH
At this point, I cannot resist having a little fun with some of the President's
spokesmen.
I am confused by their comments about this Congress. They are united in
disagreeing with Congress-buty they disagree for totally diferent reasons.
Chief economic adviser Gardner Ackley, who incidentally is from my State of
Michigen,
criticized Congress at a commencement address at my alma mater for
appropriating too much money. Such action was bad--it was adding fire to the flames
of inflation.
by the other hand
William Gaud, administrator of the Agency for International Development, has
bemoaned congressional cuts in the foreign aid program.
These fellows really ought to get together. This is a good time for them to do
so. They are both your guests at this conference.
Another gentlemen who is not on your guest list also has sharply criticized
Congress for being overly generaous with federal appropriations, and I agree whole-
heartedly.
President Johnson has lamented that his Democratic Congress was adding anywhere
from $2 to $8 billion to his non-military budget in non-critical items, making an
increase in personal and corporate income tax, not just possible but probable.
At a press confernce as long ago as last April 22, Mr. Johnson said of the
Congress: "Our problem is to keep Congress from appropriating far in excess of the
budget." He has frequently alleged that Congress is adding ampowhere
from 2 HPS billions to his budget.
Yet on Oct. 13 the President returned from the political campaign trail with
FORD
this outburst of praide for the Congress: "From what I have seen in the country,
GERAL
BRAR
I think we are going to have the best Congress in the history of this Nation when
-5-
BUSINESS COUNCIL SPEECH
we finish our record this session. The 89th Congress, my prediction is, historians
will record as the Great Congress."
The 89th Congress might have been a great Congress, but Mr. Johnson's
Texas
style
of oratory hardly fits the facts.
His sober and sensible statement of thetlApril 22, repeated many times later
MK, Johnson is night in saying that
in the session, came closer to the mark.
Congress should have held doun spending.
the wight have gone a step further and send be should not love asked for so much to speed, or
There are, of course, merits and demerits in nearly every performance, and
this is true of Congress as well as the Executive Branch.
somebody mught leave remunded him lieve to speard Every dollar appropriates, met Cougress
Let me recite for you a few congressional pluses.
The record clearly shows excessive spending in the anti-poverty program. The
House, after much debate, imposed a $7,500 ceiling on expenditures per enrollee in
the Job Corps. The average outlay per enrollee now is $9,120.
The record also clearly shows that in most cases local anti-poverty programs
are being run almost exclusively by the paid employees although maximum representa-
tion byyphe poor is called for. The House now has laid down the requirement that
the poor have one-third representation in local community action groups.
Perhaps I will be forgiven for adding that it was primarily through the efforts
of the minority that these reforms were accomplished. It was also because of
minority pressure that the total anti-poverty authorization for fiscal 1967 was
held to the $1.75 billion figure requested by the President.
Thus Congress often focuses on program fåles and prescribes a remedy.
I mentioned earlier that the Executive Branch is not the sole repository of
wisdom in Washington or the Nation.
I submit that information and opinions gathered and disseminated on Capital
Hill FORD JBRAHN
(MORE)
BUSINESS COUNCIL SPEECH
are invaluable to the Executive and to the people. Public hearings by committees
develop facts and implications which are essential to sound legislation.
In fact, there are times when I believe the legislative committees and individual
congressmen can offer better advice to the White House than that emanating from its
so-called expert advisers.
Unfortunately, that advice is often spurned.
We in the Congress have been watching with great interest this nation's experi-
ment in the New Economics.
- know that in many respects the "New Beenomics" 9 the
old economics "souped up," used when politically advantageous; ignored when there
is a political problem.
Its major premise is that we must be aggressive in using broad fiscal policy
as well as
tools and to a lesser entens, monetary policy as walder-to maintain a steady, non-
inflationary rate of growth in the economy. Its main quarrel with the past is not
necessariey that we have done the wrong things, but that we have not done enough of
the right things at the right time.
I subscribe to John Maynard Keynes's theory that the modern capitalist economy
that its excesses and deficiencies
does not automatically work at peak efficiency and can be properly accolemated by
constracted
wise and timely governmental action. But I also believe that this should be done
without violating freedom or restraining proper competition.
The three main tools in the Keynesian economic chest are tax policy, credit
policy and spending budget policy. It is intended they be used to counterbalamce the spending,
indeviable tendencies of the private sector of the economy,
virwing the world of the 1930's,
overcoming depression
While Keynes was primarily concerned with
FORD
cycle, he also warned against inflation and the debasing of a nation's currency.
LIBRARY
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BUSINESS COUNCIL SPEECH
-7-
Dr. WalterHeller, former chairman of the President's Council of Economic
Addisers, has warned that to be effective the New Economics should week both ways.
Said Heller, recently: "Essentially the job is to maintain stability without
resorting to obnoxious controls as we did in World War II and Korea."
is have in Congreeg gentionen who to extramely knowledgeable 4a the ftuld
Tom Curtis of Missouri, an outstanding member of the House Ways and
Means Committee and the Joint Economic Committee,
leas
Cupita, perhaps more than any other member of Congress,
sounded the warning that the New Economics is a two-way street.
Last year many economists and winsome of us politi ciams
and Hollaw were among these who early this year recognized the peril of
increasing inflation and pleaded for restraining action by the Administration.
The Administration disregarded pleas for
restraint, une. We are in trouble today. Our trouble is not with
Keynesian Economics but with Johnson Economics.
What is the failing in the Johnson BRonomics? It is a pumalysis of policy,
a reluctance to matio trimely credito speciality when that
put on the brabes
application becomes politically painful.
It's true that timing of government economic policy is a difficult question.
It is one on which economists can be expected to disagree regardless of their
political loyalties.
But having said that let the cite a survey of the views of leading economists
made in early 1966 by the Washington Post.
The Post polled these economists in March. Of the 30 who replied, 22 fevered
an immediate tax increase. The 22 included Dr. Heller, John K. Galbraith,
GERALD
LIBRARY
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BUSINESS COUNCIL SPEECH
-8-
Paul A. Samuelson, James Tobin of Yale, formerly a member of the Council of Economic
Advisers, Joseph A. Pechman, Prof. E. Cary Brown of M.I.T., and Prof. Harvey Brazier
of the University of Michigan, a former Treasury official.
The New York Times reported on March 13 that three out of four former chairmen
of the Council of Economic Advisers favored a tax increase reduced spending.
Those holding these views were Dr. Heller, Arthur Burns, and Raymond Saulnier.
Commenting in separate reports on the President's 1966 Economic Report, both
the Republican and Democratic members of the Joint Economic Committee saw the need
for a tax increase.
Three members of the Federal Reserve Board--Chairman Martin, Mr. Robertwon and
Mr. Beans, came out for a tax increase in or prior to May of this year. So, too,
did Pierre-Paul Schweitser, managing director 66 the International Monetary Fund.
The same general views were expensed among private economists.
Charles Walker, executive vice-president of the American Bankers Association,
said the "preponderance of opinion" favored a "combined spending cut and tax increase."
Roy Rierson, senior vice-president of Bankers Trust Co., viewed the situation
as so tight and the overheating of the economy as so obvious that "a tax increase
is clearly called for."
William F. Butler, vice-president of Chase-Manhattan Bank, said he expected a
tax increase because "as disagreeable as tax increases are, they are preferable to
inflation."
Please note the similarity between Mr. Butler's statement and this quotation
from President Johnson's 1966 Economic Report:
"If it should turn out that additional insurance (against inflation) is
needed, FORD LIBRARY
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BUSINESS COUNCIL SPEECH
-9-
then I an convinced that we should levy higher taxes rather than accept inflation--
which is the most unjust and capricious form of taxation."
Yet when the time of decision shell we any March the President ignored
this consensus for restraint through the use of fiscal policy--either a reduction in
non-essential, non-military spending or a tax increase. He in effect turned his back
on the New Economics in favor of his own brand--a dangerous mixture of politics and
economics. It was a return to the old economics. The economies of ups and downs
in the economy, the economics of boom, inflation, recession and perhaps even depression
$81d the New York Times editorially on March 13:
"By now, a wide range of economists, bankers and others are calling for a tax
increase to help finance the arms buildup in Vietnam and restrain inflationary forces
in the economy."
Mr. Johnson ignored those voices. He spurned the pleas of some of the nation's
foremost economists. olle turned a deaf ear to the advice of Congress's Joint
Economic Committee.
Yet what did leading Administration spokesmen tell the Business Council approxi-
mately one year ago today?
Some of you - had voiced concern about inflation, and this is shat Vice
President Humphrey told you then:
"We must provide for whatever expansion of our defense expenditures the situation
requires. But we see no present likelihood that expenditures will rise enought to
bring the threat of diflation. If they did, the President of the United States
would take appropriate fiscal and monetary action and budgetary action to throttle
GERALE FORD LIBRARY
that inflation. I can assure you of that tonight. Have no doubt about it."
BUSINESS COUNCIL SPEECH
-10-
1 ask you--has governmental action been employed to throttle inflation? Or do
we continue to have steady and insistent evidence of inflationary pressures in the
economy?
then
Mr. Ackley last October told you that either a lagging economy or an overheated
one would be dealt with by the Government.
He said the Government has "both the weapons and the will" to keep the economy
going "within noninflationary bounds."
Mr. Ackley not only predicted price stability, he even said another tax cut was
possible in 1956. When he spoke, the Consumer Price Index stood at 110.2. Less than
a year later--in August--the Index had climbed to 113.8.
You Council members had indicated as you went into your October 1965 meeting
that you considered inflation the principal threat to the economy. You were also
concerned, of course, about the continuing serious deficit in the balance of payments.
The Johnson Administration did not live up to its promises. The Administration
refused to use either of the two strongest and most effective instruments of
restraint--an income tax increase or spending reduction, when the time for such
restraint arrived in Marchdbefthis year.
Except for accelerated tax withholding and partial suspension of excise tax
reductions, the Administration placed the entire burden of fighting inflation on
monetary pOlicy. When the Federal Reserve Board initially reised the rediscount
rate last Demember, the Administration criticized the action as untimely.
The Administration even jettisoned its controversial wage and price guideposts
by indulging in the fiction that the fpresidentially-andorsed proposal for settling
the Airline Strike was non-inflationary.
GERALD: LIBRARY
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BUSINESS COUNCIL SPEECH
-11-
In August Republican members of the Joint Economic Comittee tried to jes the
Administration into action But the Committee jajority rejected the minority's call
for hearings on the state of the accounty. Committee Chairman Wright Patman said it
was time for action, not a study. Mr. Custis and other minority members agreed.
Said Mr. Curtis on Sept. 2: "If spending is not cut by an adequate amount,
then there must be a tax increase. There may be merit to the suggestion that the
investment tax credit be suspended, but the fact is that the Treasury Department
itself feels this would have little or no impact on the immediate situation. As for
monetary policy, we can only say that shedding tears over high interest rates comes
with ill grace from those who forced monetary policy to carry the whole burden of
restraining inflation by opposing fiscal tightening through reduced government
spending. The problem is in the White House, not the Capitol."
It was the 45-year high interest rates that finally jarred the President out
of his paralysis on economic affairs.
There appeared danger of financial panic in which borrowed money could not be
had at any price, and in which both stocks and bonds would find no buyers.
Whether this danger was imagined or real, it worried the President. The
result was the President's announced intention to fight inflation through alleged
spending cuts and suspension of the 7 per cent investment tax credit. The announce-
ment was predictable. It was politically the least painful of any of President
Jounson's options.
The minority had urged early this year that priorities be assigned to domestic
spending. Admit, we begged of the Administration, that we are at war and that war
costs many billions.
BRARY
USINESS COUNCIL SPEECH
The President's decision--that we could afford both the Vietnam War and
expansion of Grest Society programs by $3.2 billion--projected the course taken
by the 89th Congress this year.
Senate Majority Leader Mike Mansfield, in a statesmanlike comment in September
of 1965, said that Congress in its next session should "spend less time on new
legislation and more time correcting oversights in legislation we have just passed."
He added: "We have passed a lot of major bills at this session, some of them
very hastily, and they stand in extreme need of a going-over for loopholes, rough
corners, and particularly for an assessment of current and ultimate cost in the
franswork of our capacity to meetiit."
The Nation and the Congress last January expected the President to deal
primarily with Vietnam in his 1966 State of the Union Memage. Instead the President
reeled off a new and lengthy list of legislative objectives and plunged shead with
his Great Society.
There was, of course, no plugging of loopholes in 1965 legislation, no rounding
off of rough corners, no true "assessment of current and ultimate cost in the
framswork of our capacity to meet it." Again it was a case of the Presidential tail
wagging the congressional dog.
Congress made some improvements in Great Society legislation but, clearly,
Congress should do better.
We have a blueprint for Congressional Reform. It was drawn by a Joint Committee
on Organization of Congress, a group of six Democrate and sig Republicans have
endorsed the committee's recommendations. Unfortunately, Democratic leaders have
resued to go along.
Some Americans believe that every measure sent to Congress by the White House
BUSINESS COUNCIL SPEECH
-13-
should be enacted. They react angrily when Congress rejects a presidential proposal.
I submit that some of Congress's greatest accomplishments are the rejection of
ill-advised presedential requests.
One such was President Johnson's recommendation of four-year terms for members
of the House of Representatives.
If Congress had approved that request, the power of the people to control their
Government would have been reduced by 50 per cent. If House members were handed
four-year terms, the Executive could be assured continued control of Congress.
The Johnson Administration has insisted on substituting rhetoric for realism
in the management of our nation's affairs. The President insists that the best
politics is the best economics--a most dangerous view, in my opinion.
The 89th Congeess may not be a fair example of a Congress thattean influence
the President and help shape his policies. But this is the task for which Congress
is needed. The Nation must look to Congress to shake the stars out of this Admini-
istration's eyes and bring it back to reality, bring it back to the people.
###
FORD is LIBRARY GERALD
AN ADDRESS BY REP. GERALD R. FORD, R-MICH,
BEFORE THE BUSINESS COUNCIL
OCTOBER 22, 1966
MR. CHAIRMAN, DISTINGUISHED MEMBERS OF THE BUSINESS COUNCIL, COLLEAGUES IN GOVERNMENT,
GENTLEMEN:
I am extremely pleased to be here. The invitation to appear before you is an
honor and a challenge.
The natural topic for any guest speaker here is economics. It is difficult to
find something fresh to say on that subject, but I do have something new and quite
different. It is a theory advanced by a news reporter friend of mine.
Over a long period of time this newspaper chap has studied the length of women's
skirts. This was a scientific project involving the most complicated mysteries of
economic cycles. So he took notes on all of his observations. Recently he confided
to me the results of his study. He said that by close and unceasing hemline watching,
he had come to an unshakable and unswerving conclusion.
That conclusion was that the hemline of women's skirts rises in good times--you
know, things are looking up, as they say--and the hemline falls in bad times.
In 1927, my friend reports, girls who brush easily were afraid to sit down. My
friend says those were real good times.
Is there really something to my friend's theory?
Judging by what's happened in the stock market lately, I have the feeling his
hemline idea doesn't really hold up. Or maybe government officials have been keeping
too close an eye on hemlines instead of on the Dow-Jones averages or other valid
economic indicators.
Whatever figures federal offic! have been studying in recent months, the
tremors which have shaken the economy in 1966 point up the fact that they gave you a
less than accurate reading of the indicators at your annual meeting exactly one year
ago.
Because I prize this opportunity to speak to you, I have thought long and hard
about what I would say.
First, I thought of discussing air and water pollution. But coming direct from
Capitol Hill at this point, I'm not sure air pollution is a tenable topic! And this
spot, famed for its mineral waters, was hardly the place to stress water pollution.
I dallied over Truth in Packaging--and the possibility of relating it to the
credibility gap, in a nonpartisan way, of course. But then my friends on the House
Commerce Committee told me even Truth was off limits because of business concern over
"Truth in Packaging" and "Truth in Lending." I believe your distinguished chairman,
(MORE)
GERALE FORD LIBRARY
-2-
among others I see here, experienced some discomfort in this area when he contemplated
what might have happened if the Congress had approved White House recommendations on
Packaging legislation.
Because my home is the great State of Michigan, the hub of the automotive
industry, I considered the possibility of discussing auto safety legislation. But
since some representatives of that industry are here, for business and a pleasant
weekend, I didn't want to upset their plans by reminding them of the horrors of the
proposals advanced by the Executive Branch of the government in auto safety, so-called.
I finally turned to a topic certain to be nonpartisan and inoffensive--a review
of what Administration spokesmen told The Business Council 12 months ago here and an
appraisal of what has actually happened in the interim.
Wisdom is often discovered in hindsight. Sound perspective for the future
often rests on wisdom garnered in economic autopsies. Let's take a look backward so
we may look forward with clear vision.
Last year almost every one of the government speakers appearing here rhapso-
dized over "the previous fifty-six months of continued expansion."
Not one of them mentioned that during that 56-month period the use of credit
increased at a rate much more rapid than the increase in income. And not one of them
mentioned that the liquidity of corporations and commercial banks had been reduced
from year to year.
It is interesting that such basic information was slipped over by these expert
observers.
One cannot but wonder whether our current economic problems--tight money, high
interest rates and rising consumer prices--could possibly be related to these impor-
tant considerations so curiously unmentioned a year ago.
Some of the other statements Administration spokesmen did make last October
were just as curious.
Exactly one year ago Economic Council Chairman Gardner Ackiey was quoted as
saying, "I am optimistic about the continued stability of costs and prices." He also
said: "Government has the weapons and the will to maintain expansion within non-
inflationary bounds," He even held out hope for further tax cuts for low-income
families in this year of 1966.
In all fairness, I must say that Mr. Ackley hedged his bets. He acknowledged
that outlays for the Vietnam War might overheat the economy. Treasury Secretary
Fowler said somewhat the same thing a week earlier--that if Vietnam War costs ran
to $10 billion or more in 1966 he'd be thinking about an income tax increase. But
of course, Mr. Fowler went on to indicate that he wasn't really thinking about a tax
increase at all.
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-3-
In reviewing these remarks, don't you find it puzzling that the President's top
economic advisor and even the Secretary of the Treasury seemed so much in the dark
about our military spending in the immediate future, and what to do about it?
We in Congress had strong indications as to rising Vietnam War costs, and we
made them known publicly and with emphasis from time to time.
I hesitate to conclude that none of the Administration's civilian leaders had
knowledge of our military planning and the costs involved.
Yet the only other conclusion one can come to is that they knew but didn't say.
And that is worse.
In February, 1965, President Johnson called for a step-up in the Vietnam War.
Escalation continued throughout the year. It shifted into perceptibly higher gear in
July, 1965, and is steadily continuing.
In view of the obvious impact of that escalation on the economy--and it is
government's job to assess such effects--the President clearly should have submitted
a tightly restricted domestic spending budget to Congress last January.
Now--even now--Administration officials still are saying they don't know how
much the Vietnam War will cost or how we will pay for it.
You may have gathered by now that I don't believe all wisdom resides in the
Executive Branch of the Federal Government. And neither do I agree with the infer-
ence of some that all elective officials are blokes, incapable of sound judgment and
totally dedicated only to getting themselves re-elected.
I submit that information, experience and opinions gathered and disseminated on
Capitol Hill are invaluable to the Executive Branch and to the people,
I believe there are times when legislative committees and individual congressmen
can offer better advice to the White House than that of its own expert advisers.
Unfortunately, that legislative advice is often spurned.
We in the Congress have been watching with great interest this nation's experi-
ment in the New Economics. We know it cannot work properly if it is used only when
it is politically advantageous and is ignored when political fallout threatens.
Its major premise is that we must be aggressive in using broad fiscal policy
tools as well as monetary policy to maintain a steady, non-inflationary rate of
growth in the economy. Its main quarrel with the past is not necessarily that we
have done the wrong things, but that we have not done enough of the right things at
the right time.
I subscribe to John Maynard Keynes's theory that the modern capitalist economy
does not automatically work at peak efficiency and that its excesses or deficiencies
may be adjusted by wise and timely governmental action. I would emphasize that
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-4-
Keynes was primarily concerned with counteracting business slumps. But he also
warned against inflation and the debasing of a nation's currency.
The three main tools in the Keynesian economic chest are tax policy, credit
policy and spending policy. It is intended they be used to counterbalance undesirable
tendencies in the private sector of the economy.
Dr. Walter Heller, former chairman of the President's Council of Economic
Advisers, has repeatedly told us that to be effective the New Economics should work
both ways. It should be used to stimulate the economy when necessary, to restrain it
when required.
Dr. Heller recently said: "Essentially, the job is to maintain stability
without resorting to obnoxious controls as we did in World War II and Korea."
We have in Congress a gentleman who is extremely knowledgeable in the field of
economics--Rep. Tom Curtis of Missouri, an outstanding member of the House Ways and
Means Committee and the Joint Economic Committee.
Curtis has, like Heller, sounded the warning that the New Economics is a two-
way street.
He and Heller were among those who early this year recognized the peril of
increasing inflation and pleaded for restraining action by the Administration.
The Administration disregarded pleas by Curtis, Heller and many others for
restraint early in 1966. That is why we are in trouble today. Our trouble is not
with Keynesian Economics but with "Johnson Economics."
What fails us in the Johnson Economics? It is a paralysis of policy, a
reluctance to make timely application of tax, credit and budget policy when that
application becomes politically painful.
It's true that timing of government economic policy is a difficult question. It
is one on which economists can be expected to disagree honestly, regardless of their
political loyalties.
Having said that, let me call your attention to a New York Times story of last
March 13. The Times reported that three out of four former chairmen of the President's
Council of Economic Advisers favored either federal spending cuts or a tax increase.
It was in March that they urged such action. Those holding these views were
Raymond Saulnier, Arthur Burns and Dr. Heller.
Let me further cite a survey of the views of leading economists made by the
Washington Post in early 1966.
The Post polled these economists in March. Of the 30 who replied, 22 favored
an immediate tax increase. The 22 included Dr. Heller, John K. Galbraith, Paul
Samuelson, James Tobin of Yale, who is a former member of the Council of Economic
LIBRARY
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-5-
Advisers, Joseph A. Pechman, Prof. E. Cary Brown of M.I.T., and Prof. Harvey Brazier
of the University of Michigan, a former Treasury official.
Commenting in separate reports March 17 on the President's 1966 Economic
Report, both the Republican and Democratic members of the Joint Economic Committee
saw the need for a tax increase.
Three members of the Federal Reserve Board--Chairman Martin, Mr. Robertson and
Mr. Daane--came out for a tax increase in or prior to May of this year. So, too, did
Pierre-Paul Schweitzer, managing director of the International Monetary Fund.
The same general views were expressed by private economists.
Charls Walker, executive vice-president of the American Bankers Association,
said the "preponderance of opinion" favored a "combined spending cut and tax increase."
William F. Butler, vice-president of Chase-Manhattan Bank, said he expected a
tax increase because "as disagreeable as tax increases are, they are preferable to
inflation.'
Please note the similarity between Mr. Butler's statement and this quotation
from President Johnson's 1966 Economic Report, dated January 27:
"If it should turn out that additional insurance (against inflation) is needed,
then I am convinced that we should levy higher taxes rather than accept inflation--
which is the most unjust and capricious form of taxation."
Yet when fleeting time demanded decision--shall we say in March--the President
ignored this consensus for restraint through the use of fiscal policy--either a sharp
reduction in non-essential, non-military spending or a tax increase. He in effect
turned his back on the New Economics in favor of his own brand--a dangerous mixture
of politics and economics. It was a return to the old economics. The economics of
ups and downs in the economy, the economics of boom, inflation, recession and perhaps
even depression.
Said the New York Times editorially on March 13:
"By now, a wide range of economists, bankers and others are calling for a tax
increase to help finance the arms buildup in Vietnam and restrain inflationary forces
in the economy."
Mr. Johnson ignored those voices. He spurned the pleas of most of the nation's
foremost economists. He turned a deaf ear to the advice of Congress's Joint Economic
Committee.
Yet what had leading Administration spokesmen told The Business Council approxi-
mately one year ago today? Mr. Ackley told you that either a lagging economy or an
overheated one would be dealt with by the Government.
Some of you men had voiced concern about inflation, and this is what Vice
President Humphrey told you then:
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-6-
"We must provide for whatever expansion of our defense expenditures the situation
requires. But we see no present likelihood that expenditures will rise enough to
bring the threat of inflation. If they did, the President of the United States would
take appropriate fiscal and monetary action and budgetary action to throttle that
inflation. I can assure you of that tonight. Have no doubt about it."
I ask you--has effective governmental action of the kind described by the Vice
President been employed to throttle inflation? There have been no meaningful vetoes
of excessive spending measures passed by a runaway majority in the Congress. No
withholding or earmarking of appropriated low-priority funds by the White House.
Let me make it clear. We in the minority have consistently emphasized that
federal spending cuts are the best weapon against inflation. We spelled this out in
our own State of the Union Message last January when we said: "To halt inflation we
must curb federal spending. This requires the President and the Congress to set
priorities. It is imperative that the President in his budget classify his spending
proposals according to necessity and urgency. If he fails to do so, we call upon the
Democrats in Congress to join us in eliminating, reducing or deferring low priority
items.'
The time when a tax increase might properly be used to cool off the economy may
well have passed. I have the feeling that nobody in the Administration quite knows
what to do now--except ride out the storm.
The Johnson Administration has not lived up to its promises to you.
Policies unenforced, decisions avoided, and choices passed over. This is the
other side of the New Economics, as practiced by the Administration. Thus it is that
the New Economics has become a casualty of election-year politics. Thus it is that
wages and prices are caught up in an inflationary spiral whose end we cannot see.
We all know that the job of tamping down the economy this year was thrust almost
entirely on the Federal Reserve Board. That task was almost hopeless in the face of
growing commitments in Vietnam, larger outlays for the Great Society, and rising
consumer demand.
I think an income tax increase now would probably give the economy a severe
jolt. But if the Administration demands it, it will be in the name of the Vietnam War
In that light, let me call your attention to an October report on tight money
published by the Bank of America's research staff. This report states that while
military spending in the first six months of 1966 exceeded that for the comparable
period in 1965 by $5.1 billion, nondefense spending for the same period rose by
$4.5 billion.
With that, Bank of America executives conclude that the Administration should
restrain lower priority spending programs and fund no new programs until current
(MORE)
-7-
inflationary trends abate. This is what Senator Dirksen and I have been advocating
for months. Less federal spending on low-priority, non-military programs might well
have cooled off inflationary pressures and avoided the prospect of additional federal
taxes.
One of the dangers now facing the economy is that labor will go for broke on
its 1967 wage negotiations. We sorely need a wage-price stabilization plan--a
workable one. The Administration torpedoed its controversial 3.2 per cent wage-price
guideposts by indulging in the fiction that the presidentially-endorsed proposal for
settling the Airlines Strike was non-inflationary.
Is it miscalculation or politics alone which has derailed the New Economics?
I shall leave that for you to judge.
Having reviewed the statements made by Administration spokesmen a year ago, it
is difficult to see how they provided you with much useful knowledge about the future
course of your government and the economic developments to be expected as a consequence.
This has been a pretty grim message, and I am not going to try to predict what
lies ahead.
The job of forecasting the future is a tough one, as Mr. Ackley will attest.
There are hits and errors in nearly every performance, and this is true of the
Congress as well as the Executive Branch.
I'd like to tell you a little story now--a true story--about Capitol Hill and
one of its great humorists, Senator Norris Cotton of New Hampshire. This happened
during the 1966 World Series.
Cotton and a half dozen other senators were climbing into a Senate subway car
to
to go⁴the floor for a vote when the operator of the car remarked that the Los Angeles
Dodgers had committed six errors that day. This, the operator said, was an all-time
record for errors by one team in a World Series game.
"Well," said Cotton when he heard the news. "The only thing I can figure out
is that all the members of the Dodgers ball club must be Republicans--because only
Republicans could drop the ball that often."
Having joined Senator Cotton in poking a little fun at myself and my colleagues,
let me say that Republicans in Congress may have committed political errors in
Washington in 1966, but I sincerely believe they were responsible political errors--
a willingness to face hard economic reality even though it may be temporarily unpopu-
lar. That kind of error is like a champion ball player trying to make the big play
in a ball game. This is the kind of error that makes pennant-winners at the end of
the season--when it counts--and that day of reckoning is not far away.
###
STREET FORD LIBRARY
AN ADDRESS BY REP. GERALD R., FORD, R-MICH.
BEFORE THE BUSINESS COUNCIL
OCTOBER 22, 1966
MR. CHAIRMAN, DISTINGUISHED MEMBERS OF THE BUSINESS COUNCIL, COLLEAGUES IN GOVERNMENT,
GENTLEMEN:
I am extremely pleased to be here. The invitation to appear before you is an
honor and a challenge.
The natural topic for any guest speaker here is economics. It is difficult to
find something fresh to say on that subject, but I do have something new and quite
different. It is a theory advanced by a news reporter friend of mine.
Over a long period of time this newspaper chap has studied the length of women's
skirts. This was a scientific project involving the most complicated mysteries of
economic cycles. So he took notes on all of his observations. Recently he confided
to me the results of his study. He said that by close and unceasing hemline watching,
he had come to an unshakable and unswerving conclusion.
That conclusion was that the hemline of women's skirts rises in good times--you
know, things are looking up, as they say--and the hemline falls in bad times.
In 1927, my friend reports, girls who blush easily were afraid to sit down. My
friend says those were real good times.
Is there really something to my friend's theory?
Judging by what's happened in the stock market lately, I have the feeling his
hemline idea doesn't really hold up. Or maybe government officials have been keeping
too close an eye on hemlines instead of on the Dow-Jones averages or other valid
economic indicators.
Whatever figures federal officials have been studying in recent months, the
tremors which have shaken the economy in 1966 point up the fact that they gave you a
less than accurate reading of the indicators at your annual meeting emactly one year
ago.
Because I prize this opportunity to speak to you, I have thought long and hard
about what I would say.
First, I thought of discussing air and water pollution. But coming direct from
Capitol Hill at this point, I'm not sure air pollution is a tenable topic! And this
spot, famed for its mineral waters, was hardly the place to stress water pollution.
I dallied over Truth in Packaging--and the possibility of relating it to the
credibility gap, in a nonpartisan way, of course. But then my friends on the House
Commerce Committee told me even Truth was off limits because of business concern over
FORD
"Truth in Packaging" and "Truth in Lending." I believe your distinguished chairman,
(MORE)
GERALDS
LIBRARY
-2-
among others I see here, experienced some discomfort in this area when he contemplated
what might have happened if the Congress had approved White House recommendations on
Packaging legislation.
Because my home is the great State of Michigan, the hub of the automotive
industry, I considered the possibility of discussing auto safety legislation. But
since some representatives of that industry are here, for business and a pleasant
weekend, I didn't want to upset their plans by reminding them of the horrors of the
proposals advanced by the Executive Branch of the government in auto safety, so-called,
I finally turned to a topic certain to be nonpartisan and inoffensive--a review
of what Administration spokesmen told The Business Council 12 months ago here and an
appraisal of what has actually happened in the interim.
Wisdom is often discovered in hindsight. Sound perspective for the future
often rests on wisdom garnered in economic autopsies. Let's take a look backward so
we may look forward with clear vision.
Last year almost every one of the government speakers appearing here rhapso-
dized over "the previous fifty-six months of continued expansion."
Not one of them mentioned that during that 56-month period the use of credit
increased at a rate much more rapid than the increase in income. And not one of them
mentioned that the liquidity of corporations and commercial banks had been reduced
from year to year.
It is interesting that such basic information was slipped over by these expert
observers.
One cannot but wonder whether our current economic problems--tight money, high
interest rates and rising consumer prices--could possibly be related to these impor-
tant considerations so curiously unmentioned a year ago.
Some of the other statements Administration spokesmen did make last October
were just as curious.
Exactly one year ago Economic Council Chairman Gardner Ackley was quoted as
saying, "I am optimistic about the continued stability of costs and prices." He also
said: "Goverument has the weapons and the will to maintain expansion within non-
inflationary bounds." He even held out hope for further tax cuts for low-income
families in this year of 1966.
In all fairness, I must say that Mr. Ackley hedged his bets. He acknowledged
that outlays for the Vietnam War might overheat the economy. Treasury Secretary
Fowler said somewhat the same thing a week earlier--that if Vietnam War costs ran
to $10 billion or more in 1966 he'd be thinking about an income tax increase. But
of course, Mr. Fowler went on to indicate that he wasn't really thinking about a tax
increase at all.
(MORE)
-3-
In reviewing these remarks, don't you find it puzzling that the President's top
economic advisor and even the Secretary of the Treasury seemed so much in the dark
about our military spending in the immediate future and what to do about it?
We in Congress had strong indications as to rising Vietnam War costs, and we
made them known publicly and with emphasis from time to time.
I hesitate to conclude that none of the Administration's civilian leaders had
knowledge of our military planning and the costs involved.
Yet the only other conclusion one can come to is that they knew but didn't say.
And that is worse.
In February, 1965, President Johnson called for a step-up in the Vietnam War.
Escalation continued throughout the year. It shifted into perceptibly higher gear in
July, 1965, and is steadily continuing.
In view of the obvious impact of that escalation on the economy--and it is
government's job to assess such effects--the President clearly should have submitted
a tightly restricted domestic spending budget to Congress last January.
Now--even now--Administration officials still are saying they don't know how
much the Vietnam War will cost or how we will pay for it.
You may have gathered by now that I don't believe all wisdom resides in the
Executive Branch of the Federal Government. And neither do I agree with the infer-
ence of some that all elective officials are blokes, incapable of sound judgment and
totally dedicated only to getting themselves re-elected.
I submit that information, experience and opinions gathered and disseminated on
Capitol Hill are invaluable to the Executive Branch and to the people.
I believe there are times when legislative committees and individual congressmen
can offer better advice to the White House than that of its own expert advisers.
Unfortunately, that legislative advice is often spurned.
We in the Congress have been watching with great interest this nation's experi-
ment in the New Economics. We know it cannot work properly if it is used only when
it is politically advantageous and is ignored when political fallout threatens.
Its major premise is that we must be aggressive in using broad fiscal policy
tools as well as monetary policy to maintain a steady, non-inflationary rate of
growth in the economy. Its main quarrel with the past is not necessarily that we
have done the wrong things, but that we have not done enough of the right things at
the right time.
I subscribe to John Maynard Keynes's theory that the modern capitalist economy
does not automatically work at peak efficiency and that its excesses or deficiencies
may be adjusted by wise and timely governmental action, I would emphasize that
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-4-
Keynes was primarily concerned with counteracting business slumps. But he also
warned against inflation and the debasing of a nation's currency.
The three main tools in the Keynesian economic chest are tax policy, credit
policy and spending policy. It is intended they be used to counterbalance undesirable
tendencies in the private sector of the economy.
Dr. Walter Heller, former chairman of the President's Council of Economic
Advisers, has repeatedly told us that to be effective the New Economics should work
both ways. It should be used to stimulate the economy when necessary, to restrain it
when required.
Dr. Heller recently said: "Essentially, the job is to maintain stability
without resorting to obnoxious controls as we did in World War II and Korea."
We have in Congress a gentleman who is extremely knowledgeable in the field of
economics--Rep. Tom Curtis of Missouri, an outstanding member of the House Ways and
Means Committee and the Joint Economic Committee,
Curtis has, like Heller, sounded the warning that the New Economics is a two-
way street.
He and Heller were among those who early this year recognized the peril of
increasing inflation and pleaded for restraining action by the Administration.
The Administration disregarded pleas by Curtis, Heller and many others for
restraint early in 1966. That is why we are in trouble today. Our trouble is not
with Keynesian Economics but with "Johnson Economics."
What fails us in the Johnson Economics? It is a paralysis of policy, a
reluctance to make timely application of tax, credit and budget policy when that
application becomes politically painful.
It's true that timing of government economic policy is a difficult question. It
is one on which economists can be expected to disagree honestly, regardless of their
political loyalties.
Having said that, let me call your attention to a New York Times story of last
March 13. The Times reported that three out of four former chairmen of the President's
Council of Economic Advisers favored either federal spending cuts or a tax increase.
It was in March that they urged such action. Those holding these views were
Raymond Saulnier, Arthur Burns and Dr. Heller.
Let me further cite a survey of the views of leading economists made by the
Washington Post in early 1966.
The Post polled these economists in March. Of the 30 who replied, 22 favored
an immediate tax increase. The 22 included Dr. Heller, John K. Galbraith, Paul A.
Samuelson, James Tobin of Yale, who is a former member of the Council of Economic
FORD LIBRART
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-5-
Advisers, Joseph A. Pechman, Prof. E. Cary Brown of M.I.T., and Prof. Harvey Brazier
of the University of Michigan, a former Treasury official.
Commenting in separate reports March 17 on the President's 1966 Economic
Report, both the Republican and Democratic members of the Joint Economic Committee
saw the need for a tax increase.
Three members of the Federal Reserve Board--Chairman Martin, Mr. Robertson and
Mr. Daane--came out for a tax increase in or prior to May of this year. So, too, did
Pierre-Paul Schweitzer, managing director of the International Monetary Fund.
The same general views were expressed by private economists.
Charls Walker, executive vice-president of the American Bankers Association,
said the "preponderance of opinion" favored a "combined spending cut and tax increase."
William F. Butler, vice-president of Chase-Manhattan Bank, said he expected a
tax increase because "as disagreeable as tax increases are, they are preferable to
inflation."
Please note the similarity between Mr. Butler's statement and this quotation
from President Johnson's 1966 Economic Report, dated January 27:
"If it should turn out that additional insurance (against inflation) is needed,
then I am convinced that we should levy higher taxes rather than accept inflation--
which is the most unjust and capricious form of taxation."
Yet when fleeting time demanded decision--shall we say in March--the President
ignored this consensus for restraint through the use of fiscal policy--either a sharp
reduction in non-essential, non-military spending or a tax increase. He in effect
turned his back on the New Economics in favor of his own brand--a dangerous mixture
of politics and economics. It was a return to the old economics. The economics of
ups and downs in the economy, the economics of boom, inflation, recession and perhaps
even depression.
Said the New York Times editorially on March 13:
"By now, a wide range of economists, bankers and others are calling for a tax
increase to help finance the arms buildup in Vietnam and restrain inflationary forces
in the economy."
Mr. Johnson ignored those voices. He spurned the pleas of most of the nation's
foremost economists. He turned a deaf ear to the advice of Congress's Joint Economic
Committee.
Yet what had leading Administration spokesmen told The Business Council approxi-
mately one year ago today? Mr. Ackley told you that either a lagging economy or an
overheated one would be dealt with by the Government.
Some of you men had voiced concern about inflation, and this is what Vice
President Humphrey told you then:
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-6-
"We must provide for whatever expansion of our defense expenditures the situation
requires. But we see no present likelihood that expenditures will rise enough to
bring the threat of inflation. If they did, the President of the United States would
take appropriate fiscal and monetary action and budgetary action to throttle that
inflation. I can assure you of that tonight. Have no doubt about it."
I ask you--has effective governmental action of the kind described by the Vice
President been employed to throttle inflation? There have been no meaningful vetoes
of excessive spending measures passed by a runaway majority in the Congress. No
withholding or earmarking of appropriated low-priority funds by the White House.
Let me make it clear. We in the minority have consistently emphasized that
federal spending cuts are the best weapon against inflation. We spelled this out in
our own State of the Union Message last January when we said: "To halt inflation we
must curb federal spending. This requires the President and the Congress to set
priorities. It is imperative that the President in his budget classify his spending
proposals according to necessity and urgency. If he fails to do so, we call upon the
Democrats in Congress to join us in eliminating, reducing or deferring low priority
items."
The time when a tax increase might properly be used to cool off the economy may
well have passed. I have the feeling that nobody in the Administration quite knows
what to do now--except ride out the storm.
The Johnson Administration has not lived up to its promises to you.
Policies unenforced, decisions avoided, and choices passed over. This is the
other side of the New Economics, as practiced by the Administration. Thus it is that
the New Economics has become a casualty of election-year politics. Thus it is that
wages and prices are caught up in an inflationary spiral whose end we cannot see.
We all know that the job of tamping down the economy this year was thrust almost
entirely on the Federal Reserve Board. That task was almost hopeless in the face of
growing commitments in Vietnam, larger outlays for the Great Society, and rising
consumer demand.
I think an income tax increase now would probably give the economy a severe
jolt. But if the Administration demands it, it will be in the name of the Vietnam War
In that light, let me call your attention to an October report on tight money
published by the Bank of America's research staff. This report states that while
military spending in the first six months of 1966 exceeded that for the comparable
period in 1965 by $5.1 billion, nondefense spending for the same period rose by
$4.5 billion.
With that, Bank of America executives conclude that the Administration should
restrain lower priority spending programs and fund no new programs until current
(MORE)
-7-
inflationary trends abate. This is what Senator Dirksen and I have been advocating
for months. Less federal spending on low-priority, non-military programs might well
have cooled off inflationary pressures and avoided the prospect of additional federal
taxes.
One of the dangers now facing the economy is that labor will go for broke on
its 1967 wage negotiations. We sorely need a wage-price stabilization plan--a
workable one. The Administration torpedoed its controversial 3.2 per cent wage-price
guideposts by indulging in the fiction that the presidentially-endorsed proposal for
settling the Airlines Strike was non-inflationary.
Is it miscalculation or politics alone which has derailed the New Economics?
I shall leave that for you to judge.
Having reviewed the statements made by Administration spokesmen a year ago, it
is difficult to see how they provided you with much useful knowledge about the future
course of your government and the economic developments to be expected as a consequence.
This has been a pretty grim message, and I am not going to try to predict what
lies ahead.
The job of forecasting the future is a tough one, as Mr. Ackley will attest.
There are hits and errors in nearly every performance, and this is true of the
Congress as well as the Executive Branch.
I'd like to tell you a little story now--a true story--about Capitol Hill and
one of its great humorists, Senator Norris Cotton of New Hampshire. This happened
during the 1966 World Series.
Cotton and a half dozen other senators were climbing into a Senate subway car
to
to go the floor for a vote when the operator of the car remarked that the Los Angeles
Dodgers had committed six errors that day. This, the operator said, was an all-time
record for errors by one team in a World Series game.
"Well," said Cotton when he heard the news. "The only thing I can figure out
is that all the members of the Dodgers ball club must be Republicans--because only
Republicans could drop the ball that often."
Having joined Senator Cotton in poking a little fun at myself and my colleagues,
let me say that Republicans in Congress may have committed political errors in
Washington in 1966, but I sincerely believe they were responsible political errors--
a willingness to face hard economic reality even though it may be temporarily unpopu-
lar. That kind of error is like a champion ball player trying to make the big play
in a ball game. This is the kind of error that makes pennant-winners at the end of
the season--when it counts--and that day of reckoning is not far away.
# # #
AN ADDRESS BY REP. GERALD R. FORD, R-MICH., BEFORE THE BUSINESS COUNCIL, OCT, 22, 1966
MR. CHAIRMAN, DISTINGUISHED MEMBERS OF THE BUSINESS COUNCIL, COLLEAGUES IN GOVERNMENT,
GENTLEMEN:
I am very happy to be here. I consider the invitation to appear before you both
an honor and & challenge.
The natural topic for any speaker who comes before you is economics. It is
difficult to find something fresh to say on that subject, but I do have something
new for you. It is a theory advanced by a news reporter friend of mine.
Over a long period of time this newspaper chap has studied the length of women's
skirts. This was a scientific project, mind you, and so he took notes on all of his
observations. Recently he confided to me the results of his study. He said that by
close and unceasing hemline watching, he had come to an unshakable and unswerving
conclusion.
That conclusion was that the hemline of women's skirts rises in good times--you
know, things are looking up, as they say--and the hemline falls in bad times.
In 1927, my friend reports, girls who blush easily were afraid to sit down. My
friend says those were real good times.
Is there really something to my friend's theory?
Judging by what's happened in the stock market lately, I have the feeling his
hemline idea doesn't really hold up. Or maybe government officials have been keeping
too close an eye on hemlines instead of on the Dow-Jones averages.
Whatever figures federal officials have been studying in recent months, the
tremors which have shaken the economy in 1966 point up the fact that they gave you a
less than accurate reading of the indicators at your annual meeting exactly one year
ago,
Because I prize this opportunity to speak to you, I have thought long and
BERATO hard R. FORD LIBRAR,
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THE BUSINESS COUNCIL SPEECH
-2-
what I would say.
My first impulse was to explore with you the political inflation and the
questionable credit that accompany the escalating dues to the President's Club.
But I was warned against talking partisan politics. I was told you fellows would
tune me out, and besides I might spark a Boosters' Club backlash. After all,
arousing your ire on a subject of that kind could lead to economic disaster for the
Republican Party--contributory negligence.
Next I thought of discussing air and water pollution. But coming from Capitol
Hill, I could not in good conscience raise the first problem. And this spot, famed
for its mineral waters, was hardly the place to stress the second.
I dallied over Truth in Packaging--and the possibility of relating it to the
credibility gap, in a nonpartisan way, of course. But then my friends on the House
Commerce Committee told me even Truth was off limits because of business concern over
"Truth in Packaging" and "Truth in Lending." I believe your distinguished chairman,
among others I see here, experienced some discomfort in this area.
I finally turned to a topic certain to be nonpartisan and inoffensive--a review
of what Administration spokesmen told the Business Council 12 months ago here and an
appraisal of what has actually happened in the interim.
Wisdom is often discovered in hindsight. Sound perspective for the future often
rests on wisdom garnered in economic autopsies. Let's take a look backward so we may
look forward with clearer eyes.
Last year almost every one of your government speakers rhapsodized over "the
previous fifty-six months of continued expansion."
FORD
Not one of them mentioned that during that 56-month period the use of credit
GERALD
LIBRARY
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THE BUSINESS COUNCIL SPEECH
-2-
what I would say.
My first impulse was to explore with you the political inflation and the
questionable credit that accompany the escalating dues to the President's Club.
But I was warned against talking partisan politics. I was told you fellows would
tune me out, and besides I might spark a Boosters' Club backlash. After all,
arousing your ire on a subject of that kind could lead to economic disaster for the
Republican Party--contributory negligence.
Next I thought of discussing air and water pollution. But coming from Capitol
Hill, I could not in good conscience raise the first problem. And this spot, famed
for its mineral waters, was hardly the place to stress the second.
I dallied over Truth in Packaging--and the possibility of relating it to the
credibility gap, in a nonpartisan way, of course. But then my friends on the House
Commerce Committee told me even Truth was off limits because of business concern over
"Truth in Packaging" and "Truth in Lending." I believe your distinguished chairman,
among others I see here, experienced some discomfort in this area.
I finally turned to a topic certain to be nonpartisan and inoffensive--a review
of what Administration spokesman told the Business Council 12 months ago here and an
appraisal of what has actually happened in the interim.
Wisdom is often discovered in hindsight. Sound perspective for the future often
rests on wisdom garnered in economic autopsies. Let's take a look backward so we may
look forward with clearer eyes.
Last year almost every one of your government speakers rhapsodized over "the
previous fifty-six months of continued expansion."
Not one of them mentioned that during that 56-month period the use of
credit GERALD FORD LIBRARY
(MORE)
BUSINESS COUNCIL SPEECH
-3-
increased at a rate much more rapid than the increase in income. And not one of them
mentioned that the liquidity of corporations and commercial banks had been reduced
from year to year.
It is interesting that such basic information was passed over by these expert
observers.
One cannot but wonder whether our current economic problems--tight money, high
interest rates and rising consumer prices--could possibly be related to these impor-
tant considerations so curiously unmentioned a year ago.
Some of the statements Administration spokesmen did make last October were just
as curious.
Exactly one year ago Economic Council Chairman Gardner Ackley was quoted as
saying, "I am optimistic about the continued stability of costs and prices." He also
said: "Government has the weapons and the will to maintain expansion within non-
inflationary bounds." He even held out hope for further tax cuts for low-income
families in this year of 1966.
In all fairness, I must say that Mr. Ackley hedged his bets. He acknowledged
that outlays for the Vietnam War might overheat the economy. Treasury Secretary
Fowler said somewhat the same thing a week earlier--that if Vietnam War costs ran
to $10 billion or more in 1966 he'd be thinking about an income tax increase. But
of course, Mr. Fowler went on to indicate that he wasn't really thinking about a tax
increase at all.
In reviewing these remarks, don't you find it pussling that the President's
top economic advisor and even the Secretary of the Treasury seemed so much in the dark
about future military spending and what to do about it?
(MORE)
GERALD FORD VIBRARY
BUSINESS COUNCIL SPEECH
-4-
We in Congress had strong indications as to rising Vietnam War costs, and we
made them known publicly from time to time.
I hesitate to conclude that none of the Administration's civilian leaders had
knowledge of our military planning and the costs involved.
Yet the only other conclusion one can come to is that they knew but didn't say.
And that is worse.
In February, 1965, President Johnson called for a stepup in the Vistnam War.
Escalation continued throughout the year. It shifted into perceptibly higher gear in
July, 1965 and is still continuing.
In view of the obvious impact of that escalation on the oconomy--and it is
the
government's job to assess such effects--President clearly should have submitted a
tightly restricted domestic spending budgat to Congress last January.
Now--even now--Administration officials still are saying they don't know how
much the Vietnam War will cost or how we will pay for it.
You may have gathered by now that I don't believe all wisdom resides in the
Executive Branch of the Federal Government. And neither do I agree with the inference
of some that all elective officials are blokes, incapable of sound judgment and
totally dedicated only to getting themselves elected.
I submit that information and opinions gathered and disseminated on Capitol Hill
are invaluable to the Executive Branch and to the people.
I believe there are times when legislative committees and individual congressmen
can offer better advice to the White House than that of its so-called expert advisers.
Unfortunately, that advice is often spurned.
We in the Congress have been watching with great interest this nation's experiment
(MORE)
BERALD FORD LIBRARY
BUSINESS COUNCIL SPEECH
-5-
in the New Economics. We know that in many respects the "New Economics" is the old
economics "souped up," used when politically advantageous; ignored when political
fallout threatens.
Its major premise E is that we must be aggressive in using broad fiscal policy
tools--and to a lesser extent, monetary policy as well--to maintain a steady, non-
inflationary rate of growth in the economy. Its main quarrel with the past is not
necessarily that we have done the wrong things, but that we have not done enough of
the right things at the right time.
I subscribe to John Maynard Keynes's theory that the modern capitalist economy
does not automatically work at peak efficiency and can be properly accelerated by
wise and timely governmental action. But I also believe that this should be done
without violating freedom or restraining proper competition.
The three main tools in the Keynesian economic chest are tax policy, credit
policy and budget policy. It is intended they be used to strengthen private spending,
investment and production.
But while Keynes was primarily concerned with the "up" side of the business
cycle, he also warned against inflation and the debasing of a nation's currency.
Dr. Walter Heller, former chairman of the President's Council of Economic
Advisers, has warned that to be effective the New Economics should work both ways.
Said Heller, recently: "Essentially the job is to maintain stability without
resorting to obnoxious controls as we did in World War II and Korea."
We have in Congress a gentlemen who is extremely knowledgeable in the field of
economics--Rep. Tom Curtis of Missouri, an outstanding member of the House Ways and
Means Committee and the Joint Economic Committee.
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GERALD FORD LIBRARY
BUSINESS COUNCIL SPEECH
-6-
Curtis has, like Heller, sounded the warning that the New Economics is a two-way
street.
He and Heller were among those who early this year recognized the peril of
increasing inflation and pleaded for restraining action by the Administration.
The Administration disregarded pleas by Heller, Curtis and many others for
restraint early in 1966. That is why we are in trouble today. Our trouble is not
with Keynesian Economies but with "Johnson Economics."
What fails us in the Johnson Economics? It is a paralysis of policy, a
reluctance to make timely application of tax, credit and budget policy when that
application becomes politically painful.
It's true that timing of government economic policy is a difficult question.
It is one on which economists can be expected to disagree regardless of their
political loyalties.
But having said that, let me cite a survey of the views of leading economists
made in early 1966 by the Washington Post.
The Post polled these economists in March. Of the 30 who replied, 22 favored
an immediate tax increase. The 22 included Dr. Meller, John K. Galbraith, Paul A.
Samuelson, James Tobin of Yale, formerly a member of the Council of Economic Advisers,
Joseph A. Pechman, Prof. E. Cary Brown of M.I.T., and Prof. Harvey Brazier of the
University of Michigan, a former Treasury official.
The New York Times reported on March 13 that three out of four former chairmen
of the Council of Economic Advisers favored a tax increase or reduced spending.
Those holding these views were Dr. Heller, Arthur Burns, and Raymond Saulnier.
Commenting in separate reports March 17 on the President's 1966 Economic Report,
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GERALD LIBRARY
THE BUSINESS COUNCIL SPEECH
-7-
both the Republican and Democratic members of the Joint Economic Committee saw the
need for a tax increase.
Three members of the Federal Reserve Board--Chairman Martin, Mr. Roberson and
Mr. Daane, came out for a tax increase in or prior to May of this year. so, too,
did Pierre-Paul Schweitser, managing director of the International Monetary Fund.
The same general views were expressed by private economists.
Charles Walker, executive vice-president of the American Bankers Association,
said the "preponderance of opinion" favored a "combined spending cut and tax increase."
Roy Rierson, senior vice-president of Bankers Trust Co., viewed the situation as
so tight and the overheating of the economy as so obvious that "a tax increase is
clearly called for."
William F. Butler, vice-president of Chase-Manhatten Bank, said be expected a
tax increase because "as disagreeable as tax increases are, they are preferable to
inflation."
Please note the similarity between Mr. Butler's statement and this quotation
from President Johnson's 1966 Economic Report, dated January 27:
"If it should turn out that additional insurance (against infletion) is needed,
then I am convinced that we should levy higher taxes rather than accept inflation--
which is the most unjust and capricious form of taxation."
Yet when fleeting time demanded decision--shall we say in March-the President
ignored this consensus for restraint through the use of fiscal policy--either a sharp
reduction in non-essential, nen-military spending or a tax increase. He in effect
turned his back on the New Economics in favor of his own brand--a dangerous mixture
of politics and economics. It was a return to the old economics. The economics FOUR
(MORE)
GERALD LIBRARY
BUSINESS COUNCIL SPEECH
-8-
ups and downs in the economy, the economics of boom, inflation, recession and perhaps
even depression.
Said the New York Times editorially on March 13:
"By now, a wide range of economists, bankers and others are calling for a tax
increase to help finance the arms buildup in Vietnam and restrain inflationary forces
in the economy."
Mr. Johnson ignored those voices. He spurned the pleas of some of the nation's
foremost economists. He turned a deaf ear to the advice of Congress's Joint
Economic Committee.
Yet what had leading Administration spokesmen told the Business Council
approximately one year ago today?
Some of you men had voiced concern about inflation, and this is what Vice President
Humphrey told you then:
"We must provide for whatever expansion of our defense expenditures the situation
requires. But we see no present likelihood that expenditures will rise enough to
bring the threat of inflation. If they did, the President of the United States
would take appropriate fiscal and monetary action and budgetary action to throttle
that inflation. I can assure you of that tonight. Have no doubt about it."
I ask you--has effective governmental action of the kind described by the
Vice President been employed to throttle inflation? Or do we continue to see steady
and insistent evidence of dangerous inflationary pressures in the economy?
The time when a tax increase might properly be used to cool off the economy
may well have passed. I have the feeling that nobody in the Administration quite
knows what to do now.
The Johnson Administration has not lived up to its promises to you.
BERALD FORD LIBRARY
(HORE)
BUSINESS COUNCIL SPEECH
-9-
Policies unenforced, decisions avoided, and choices passed over. This is the other
side of the New Economies, as practiced by the Administration. Thus it is that the
New Economics has become a casualty of election-year politics. Thus it is that wages
an
and prices are caught up in inflationary spiral whose end we cannot see.
We all know that the job of tamping down the economy this year was thrust almost
entirely on the Federal Reserve Board. That task was almost hopeless in the face of
growing commitments in Vietnam, larger outlays for the Great Society, and rising
consumer demend.
I think an income tax increase now would probably give the economy & severe jolt.
But if the Administration demands it, it will be in the name et the Vietnam war.
In that light, let me call your attention to an October report on tight money
published by the Bank of America's research staff. This report states that while
in/1966 exceeded that for the of
military spending comparable period in 1965 by $5.1
billion, nondefense spending for the same period rose by $4.5 billion.
With that, Bank of America executives conclude that the Administration should
restrain lower priority spending programs and fund no new programs until current
inflationary trends abate.
One of the dangers now facing the economy is that labor will decide to go for
bruke on its 1967 wage negotiations. We sorely need a wage-price stabilization
plan--a workable one. The Administration torpedoed its controversial 3.2 per cent
wage-price guideposts by indulging in the fiction that the presidentially-endorsed
proposal for settling the Airlines Strike was non-inflationary.
Is it miscalculation or politics alone which has derailed the New Economics?
I shall leave that for you to judge.
FORD i LIBRARY GERALD
(MORE)
BUSINESS COUNCIL SPEECH
-10-
But having reviewed the statements made by Administration spokesmen & year ago,
it is difficult to see how they provided you with much useful knowledge about the
future course of your government and the economic developments to be expected as a
consequence.
This has been a pretty grim message, and I am not going to try to predict what
lies ahead.
The job of forecasting the future is a tough one, as Mr. Ackley will attest to.
There are hits and errors in nearly every performance, and this is true of the
Congress as well as the Executive Branch.
I'd like to tell you a little story now--a true story--about Capitol Kill and
one of its great humorists, Seantor Norris Cotton of New Hampshire. This happened
during the 1966 World Series.
Cotton and a half dosen other senators were climbing into a Senate subway car
to go to the floor for a vote when the operator of the car remarked that the
Los Angeles Dodgers had committed six errors that day. This, the operator said,
was an all-time record for errors by one team in a World Series game.
"Well," said Cotton when he heard the news. "The only thing I can figure out is
that all the members of the Dodgers ball club must be Republicans--because only
Republicans could drop the ball that often."
Having joined Senator Cotton in Poking a little fun at myself and my colleagues,
let me say that not all of the errors made in Washington in 1966 were committed by
Republicans--not by a long shot.
Perhaps at this meeting this year your Administration spokesman can be induced
to project political and economic trends for you over the decade ahead. If they do,
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GERALD FORD LIBRARY
BUSINESS COUNCIL SPEECH
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and if their forecasts are more accurately and candidly stated than those of a year
ago, I fear not for November 8 but I do fear for the future of the President's Club.
...
FORD i LIBRARY GERALD