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Press Conference of Radio Television News Director Association with President Ford, Thomas Frawley, Gerald L. Warren, William Simon, William Seidman, Frank Zarb, and James T. Lynn
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Press Conference of Radio Television News Director Association with President Ford, Thomas Frawley, Gerald L. Warren, William Simon, William Seidman, Frank Zarb, and James T. Lynn
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Digitized from Box 7 of the White House Press Releases at the Gerald R. Ford Presidential Library
FOR IMMEDIATE RELEASE
JANUARY 24, 1975
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS CONFERENCE
OF
RADIO TELEVISION NEWS DIRECTORS ASSOCIATION
WITH
GERALD FORD
PRESIDENT OF THE UNITED STATES
THOMAS FRAWLEY
PRESIDENT, RADIO TELEVISION NEWS DIRECTORS ASSOCIATION
GERALD L. WARREN
DEPUTY PRESS SECRETARY TO THE PRESIDENT
WILLIAM SIMON
CHAIRMAN, ECONOMIC POLICY BOARD
WILLIAM SEIDMAN
EXECUTIVE DIRECTOR, ECONOMIC POLICY BOARD
AND
ASSISTANT TO THE PRESIDENT FOR ECONOMIC AFFAIRS
FRANK ZARB
ADMINISTRATOR, FEDERAL ENERGY ADMINISTRATION, AND
EXECUTIVE DIRECTOR, ENERGY RESOURCES COUNCIL
JAMES T. LYNN
SECRETARY, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
ROOM 450
OLD EXECUTIVE OFFICE BUILDING
1:30 P.M. EST
MR. FRAWLEY: I will tell you, one of the real
pleasures of being president of the Radio and Television News
Directors Association is having the opportunity to welcome
our members to an event like this, so welcome to Washington.
I am certainly glad you are here.
I do want to pay special recognition to one of our
RTNDA past presidents, Bill Roberts, who stands back there.
(Applause.)
And in starting the program now I am pleased to
introduce the Deputy Press Secretary, Gerald Warren.
(Applause.)
MR. WARREN: Thank you very much, Tom.
Tom tells me that this is a rather unusual or
unique occasion for the Radio and Television News Directors
Association and I hope we can do it again when there is some-
thing we can tell you here and there are some questions that
you wish to ask members of the White House staff and members
MORE
(OVER)
- 2 -
of the President's Cabinet. I will just go down a brief
rundown on what we will be doing today. We hope it will be
informal, we hope you will participate, and ask the questions
that you have been thinking about when you see the stories
about the President's Economic and Energy Program come
across the tickers and across your monitors and I know you
have many questions. It is a comprehensive set of solutions
to a very complex problem.
You will be talking with a number of gentlemen
today who can answer the questions for you. We will start
off with Secretary Simon, who is here; Bill Seidman, who is
the President's Executive Director of the Economic Policy
Board, will be here to discuss with you the fact-finding
apparatus of the President's economic advisers.
Then later on this afternoon Frank Zarb will be
here for a discussion as detailed as you want it to be on
the energy side of the President's proposals. Secretary
Lynn will be here and I think we can ask him some questions
about some of the things that will be addressed outside of
the energy program. As you know, he is to be the President's
new Director of the Office of Management and Budget.
And then the President will be here at approximately
4:30 and we hope to break up at about five o'clock, but we
are not going to rush things if it is interesting. So with
that brief overview. I want to bring up Secretary William
Simon, Secretary of the Treasury, who has been sitting in
some exhausting meetings with the President and some meetings
with the Economic Policy Board and with the Energy Resources
Council. Bill Simon is Chairman of the Economic Policy Board.
He is, I think, known to all of you, so I will not give you
his biography, but it is in the information which you will receive
throughout the day, and we didn't give it to you beforehand
because time is short and I didn't think you would have a
chance to read it.
I think a fresh approach is probably best. You
will read it on the plane home or this evening and then if
you have further questions, come back to us. But in that
packet of information will be the transcript of Secretary
Simon's testimony before the Ways and Means Committee on
Wednesday, and I think if you concentrate on the first 17
pages of that testimony, you will have a very precise and
accurate description and explanation of the President's pro-
gram.
With that I will introduce to you Secretary William
Simon.
(Applause.)
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- 3 -
SECRETARY SIMON: Thank you, Jerry.
Ladies and gentlemen, I am delighted to have the
opportunity to come and speak with you today and I want to
reiterate at the outset reference to Jerry's comments about
my Ways and Means testimony. I spent two days before the
Ways and Means Committee, perhaps some of you were there this
week, attempting to explain and educate and think through
together with the Congress the problems that we face in our
country today, and I think we are gaining a better understand-
ing of the complexities and really the alternatives that we
have, which, of course, is the most important thing to under-
stand.
It is one thing to define the problem, and then you
have to define the solutions and remedies that you would like
to put in place. I think that, if you would, the testimony
runs. to 40-some-odd pages. The second half of it deals with
a very complex tax policy, which if you are having trouble
getting to sleep, I would urge you to read. It isn't what
I would call required reading. But what we tried to do in
the first 17 or 18 pages is to put the subject into English,
which is no mean task, I might add, so that people will under-
stand it.
You know, Congressmen are people. They are general-
ists basically. They deal with a broad range of issues up
there and, of course, the level of economic literacy around the
country necessarily is very low and we have to do something
about this because it is only through our education and telling
the people the problem in understandable terms -- again with
your assistance -- are we going to be able to meet and raise
the level of confidence in the leadership that is dealing
with it.
Economics has moved to the top position on all of
the news programs and I believe it is going to stay there.
So it is extremely important, as I say, that we have these
kinds of meetings and I hope this will be the first of many.
We face many difficult and seeming conflicting problems today
and they require decisive action. And the President's program
that was designed deals with it in this way.
The President's program is designed to deal with the
three basic problems we have: inflation, recession, and energy
independence. As I said to Ways and Means yesterday, there
are many people who don't believe we can solve all these prob-
lems at the same time. I believe that we can and the President
believes that we can and I believe that we have charted the
proper course to accomplish this.
Our major proposals are basically, for the economy,
a temporary tax reduction of $16 billion to support a healthy
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- 4 -
recovery from the recession, and of course a moratorium on
any spending during 1975 which will, when the economy returns
to its full health, restore a balanced budget and indeed hope-
fully a surplus during periods of economic activity which
has been so sadly lacking in this country for a long time.
In the area of energy and conservation taxes on
petroleum products to cut domestic usage and imports on for-
eign oil. This is accompanied with permanent tax reductions
and payments which overall will restore the purchasing power
of the people and businesses of our country. There are also
numerous specific actions to take care of the supply side,
increasing domestic energy supply
Inflation like interest tends to compound. It
reached an annual rate of over 12 percent in 1974, the high-
est level in our peacetime history. The damage has been
extensive, the lifetime savings of many have shriveled.
High interest rates always accompany an inflation and they
affect adversely the livelihood of millions, the opportuni-
ties of families to own homes and the ability of others to
either open or to stay in business.
The uncertainties created by inflation undermine
the confidence of both the consumers and investors with
consequent damage to jobs and new investment and increased
productivity which, of course, are so necessary to stem
inflation.
I don't believe our economic system as we know it
could long survive this trend. About 50 years ago Keynes
wrote, and it is still true today, "There is no subtler, no
surer means of overturning the existing basis of society than
to debauch the currency. The process engages all the hidden
forces of economic law on the side of destruction and does
it in a manner which not one man in a million is able to
diagnose," and this is our problem.
When I talk about the level of economic literacy,
the ability to perceive on the part of the American people
really what is going on, the pervasive effects of the inflation
upon our dollar internationally and domestically, our system
cannot tolerate this type of inflation.
I am told that that statement by Keynes was a
followup on a similar remark by Lenin to the effect that
inflation would ultimately destroy capitalism. There have
been many causes for this inflation, but in my opinion the
biggest single factor has, been a prolonged period of large
Government deficits including the off-budget items.
The momentous growth in Federal expenditures and
Federal deficits has been truly startling. It took 186
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- 5 -
years for the budget to reach $100 billion, the point it
reached in 1962, then only nine more years to reach $200
billion, and four more this year to break 300. Revenues, of
course, have not kept up with expenditures, so that when we
close the books on fiscal 1975 we will have had deficits,
some of them of massive proportions, in 14 of the last 15
years, and the accumulated debt for that period alone exceeds
$130 billion.
There can be no doubt about the inflationary impact
of these huge budget deficits. They added enormously aggre-
gate demands for goods and services and they were directly
responsible for upward pressures on the price levels. Heavy
borrowing by our Government also was an important contributing
factor in pushing up interest rates and, of course, all the
strains that developed in our financial markets.
Worse still, a continuation of these budget deficits
undermine the confidence of the American people in their
Government in the capacity of Government to deal with the
economy. In short, when the Federal budget runs a deficit
year after year, especially during these periods of very high
economic activity, it becomes a major source of economic and
financial instability. When it spends more than it receives,
it has to obviously borrow to make up the difference and dur-
ing this period in our modern monetary system that kind of
borrowing almost always results sooner or later in the crea-
tion of too much money. It seldom results in the commensurate
creation of additional goods and services.
There is no way to escape the basic dilemma pre-
sented by OUT. deficits. On the one hand, if the deficit
caused a significant increase in the money supply, we have
further inflation. On the other hand, if deficits aren't
permitted to increase the money supply, we must be prepared
to endure tight credit and somewhat higher interest rates.
This is a very difficult circle to break. The only
solution is to take what would be extraordinary for this
country dealing with this problem, and really in many other
countries of the world, the long-term view rather than
short-term view. Sometimes in this country our long-term
view runs out to about the next election.
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- 6 -
Now let's look at the recession which in large
part was attributable to our inflationary excesses. It
is just purely and simply the hangover that follows the
revelry. One of the major factors in the current recession
is the decline in the housing industry which is the key
component in our economy. The housing industry is especially
vulnerable, of course, to high interest rates. It is the
high interest rates that accompany every inflation, the
double-digit interest rates and instability in our financial
markets that was created thereby, that caused money to
flow out of the thrift institutions and housing to go into
the worst tailspin in our history.
In the same way inflation was the major factor
in demolishing consumer confidence, and while it was
recession that finally pushed the confidence over the brink,
it was inflation because confidence was declining long before
the recession was apparent to most, and this loss of consumer
confidence caused the biggest drop in consumer purchases
since the end of World War II.
To cure our economic problems we are going to have
to administer the medicine continuously over a period of
years, and I mean a period of three to five years to get us
back to a sound economy. We want to do as much as we can
to stop inflation without hampering economic activity, and
this can be done. At the same time, we all have to recognize
that our recession has become a much more serious problem
causing widespread hardships and unemployment.
The President's recommendations for a temporary
tax cut are designed to insure that the recovery that we
expect in the middle months of this year is sharper and
stronger than would otherwise be the case. We can and
must have recovery from the current recession, but we have
to do it in a way that doesn't lead us to an overheating in
our economy again.
The need for some form of stimulation is apparent.
The recession is already serious. Our latest estimates
indicate that the rate of unemployment will rise to
approximately eight percent. We continue to believe in
fact that even in the absence of further stimulation that
the economy would bottom out in the middle months of this
year and that the recovery phase will begin thereafter.
The temporary tax cut would be of significant help
in making the recovery more solid as well as more certain.
It would also help to reduce the unemployment rate from what
it might otherwise be. Moreover, since we are likely to
have a margin of slack in the economy for some time, taxes
can be cut temporarily without seriously compromising our
efforts against inflation.
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- 7 -
Under these circumstances, we should do what we can
to strengthen the economy through this temporary tax reduction.
In order to provide the needed economic stimulus the
President proposes a one-time reduction of $16 billion to be
placed in effect within the next 90 days. Making it temporary
avoids building into the system the larger deficits that
ultimately would refuel inflation.
The temporary tax reduction will be an across
the board refund for all taxpayers with a total of $16 billion
allotted, $12 billion to individuals and $4 billion to business
taxpayers, which is the same three to one ratio of individual
income taxes as they bear to corporate taxes.
Now, in the energy field, the President proposes
to make the country energy independent by 1985. Oil is an
extremely important and pervasive commodity in our economy.
We are now dependent on foreign sources for just about 40
percent of our needs. Major foreign suppliers in organizing
a cartel, they have the power to bring about political and
economic spasms of the kind which we have recently experienced.
In the last year and a half, the Arab embargo
created major disruptions throughout our economy and the
quadrupling of oil prices has contributed significantly
both tc inflation and the recession that we are now exper-
iencing.
If we are to retain control over our own economic
destinies we have to achieve independence. We can do it
and when it is clear that we intend to do it, we will
regain a great deal of control over the situation. We have
very little control dealing from our knees.
The President's energy program is therefore
designed primarily to reduce our dependence on imported
oil. In order to do that we need to develop alternatives
for oil and we will also need to reduce our total demand
for energy of all kinds.
Rationing is one way to curb demand and a number
of national leaders have proposed it. We could perhaps
live with rationing in a period of temporary emergency but
as a way of life I suggest it is fundamentally inconsistent
with our system and with the basic spirit of the American
people.
Even in terms of emergency, rationing has never
worked fairly or efficiently. Gasoline only accounts for
a part of each barrel of oil and we would clearly have to
ration the other parts, diesel, heating oil.
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- 8 -
Who would decide which persons needed more and which
needed less of each one of these things? Every family, car,
motorbike, school, store, church, every manufacturer, every-
thing would have to obtain a permit for a certain quantity of
gasoline, natural gas, oil, whatever their energy requirement
was. These allocations would have to be changed every time
someone was born or died or moved or married or divorced, and
every time a business was started, merged, sold out or bought
out, whenever you wanted to add a new room onto your house,
and some Government fficial would have to approve it.
Last year when we sat down and designed the ration-
ing program in the FEA, we concluded that it would be imple-
mented or could be in four to six months, employ about 15,000
to 20,000 people, cost about $2 billion and, of course, use
the 40,000 postal offices for distribution and require 3,000
State and local boards, the voluntary types that we had in
World War II. They would handle exceptions.
When we consider the problems of just getting our
mail delivered, are we really ready to trust an army of civil
servants, however able and dedicated, to decide who deserves
just what of this basic commodity? People should ask them-
selves which sort of way they would prefer to go. The sug-
gested increase of prices, or a system in which someone else
could tell them how, and for the indefinite future, when and
where they might drive or how warm they might keep their homes
or rooms.
Does anybody honestly believe that the American
people are willing to trade these basic freedoms, in perpe-
tuity, for 10 cents a gallon? The President has proposed
instead that we reduce the consumption of oil by the most
neutral and least bureaucratic system available, through the
price system. The energy proposals would raise the price of
oil. At the same time income tax cuts would increase the
disposable incomes of every household.
Taxpayers could, if they wish, continue to buy more
expensive oil and oil products and they would have extra money
to do it with. The question they would face is whether they
want to spend that extra money for more expensive oil or
whether they wish to use it for another purpose. A great
many will choose to use it for other purposes. That is
especially true of business which alertly switches to alter-
native products when a price advantage occurs.
The President's package has three parts, an import
fee, ultimately settled at $2 per barrel on crude and product
and a corresponding excise tax on domestic crude oil, decon-
trol of crude and the windfall profits tax on oil producers,
and price decontrol of new natural gas and the equivalent of
a $2 a barrel oil excise which is 37 cent tax on natural gas
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per MCF. This combination of fees, taxes and decontrol will
raise the price of oil and gas relative to other prices.
That is going to discourage their unnecessary usage and
encourage at the same time a substitution of other energy
sources and induce the replacement of existing energy-using
devices.
The energy package will reduce consumption signifi-
cantly. None of us relishes the prospect of higher oil and gas
prices. We have all developed habits of energy use condi-
tioned by two decades of declining relative prices in energy.
If you heard me say once last year, you probably heard me
say too many times, we have moved from a low-cost, abundant
energy base to a high-cost, scarce energy base in this coun-
try.
We have found all of the easy oil and gas, that
which is cheap to find and cheap to produce and away from
the Arab oil cartel and their pricing, testill costs a great
deal more to drill an oil well in the hostile climes where
our remaining reserves are at this time.
Now I see time is running short here. I have
talked a little longer. I am going to stay with you a little
longer today because unfortunately Alan Greenspan couldn't
come. But I would like to answer as many questions as I can
in the remaining time and also encourage you to in the future,
if there is any way that I can help you or clarify anything
for you, any questions that you might have, because I know
many of you have spoken to me in the past about the need to
explain this and how you feel your responsibility so deeply,
and I would like to work with you and help you every way I
can because you would be doing me a favor and you would be
doing the country a favor.
Thank you.
Q Mr. Secretary, we talked to a few Congressmen
yesterday who were a little bit upset that the President had
made the declaration to tax imported oil prior to submitting
his proposal or talking to Congressmen about a tax reduction.
Their fear was that the declaration averts Congress' attention
from important and priority questions of a tax rebate.
Now did he do this intentionally? Was this the
order that he intended to present these two questions?
SECRETARY SIMON: No, the President did not expect
the Congress to challenge his very clear authority to impose
for national security reasons an import fee. In 1973, in
March of 1973, we changed the Mandatory Oil Import Program
and put in a fee system under the same statutory responsi-
bility and it is quite clear that the President has that
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- 10 -
responsibility based on the same, on similar findings, recog-
nizing that the definition of national security is not only
military, it is also ecnnomic and financial. Indeed in this
world it is probably more economic and financial than it is
military.
And when you say was it his intention, the President
as I testified yesterday wants this immediate tax rebate, the
$16 billion -- reduction rather -- to go to the American
people in the most expeditious fashion. Pass that bill hope-
fully before you go home on your Lincoln Day recess through
both Houses of Congress. It is simple. It is a matter of
just deciding how to give the rebate, whether it is through
our proposal of rebates of 12 percent on '74, whether they
wish to jiggle that -- that goes on all the time and it just
doesn't take that long.
I would certainly hope that a debate on the issue
of the President's authority to do this would not hold that
up. You know, the important thing to consider here is that,
I guess it was August '71 when President Nixon gave the first
energy address -- there have been many addresses since, presi-
dential and otherwise. There have been literally hundreds of
testimonies, at least half of them by myself on the subject.
There is no mystery to energy policy, there is no
mystery to what has to be done and the Government has much
legislation to pass in this area. Some of the substance
against it we can debate. But not one important piece of
legislation has passed in that time and the President believes
that the time for action is now because we have dilly-dallied
for a long, long time on a very critical problem.
Q
If the President wanted to get more spending
power into the pockets of the American people quickly, why
didn't he go for cutting the withholding instead of rebating
twice a year?
SECRETARY SIMON: Oh, this would get the money to
the American people much faster than withholding and let me
explain why. Of course, first of all, Congress has to pass
the law so let's assume Congress passed the law.
It takes approximately 60 days to change the with-
holding tables. If you will look in the tax statutes, they
are set by law, what we can do on the withholding tables.
So it would be 60 days before we changed the tables and then
there would be a period of time before every business could
adjust its payroll to meet that. At that point you would
start a trickle through to the paycheck of a relatively small
amount of money.
Now, recognizing that we wanted to get the money
into the economy as quickly as possible, a simple rebate based
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on 1974 -- not '75, and that was done in a very calculated
fashion for several major reasons. One, the American people
all knew how much income tax they paid in 1974 so they could
calculate exactly how much they would get back very simply
and make their plans accordingly. We could give it back in
two paychecks, which would be much more stimulative to the
economy than having it trickle through in withholding.
We also did it in '74 because we had more people
working in '74 than we do obviously in '75 with the unemploy-
ment rate rising as it is, and also there were many people
in 1974 with two jobs, rather than one, and they worked a
longer workweek. So for all of these factors we proposed
it in this fashion.
Q
Mr. Secretary, you mentioned that this country
depends upon foreign suppliers for about 40 percent of the
petroleum, and your comment was that action by these pro-
ducers could produce spasms in the economy, but do such pro-
ducers, in fact, have the power to strangulate this economy
or this country?
SECRETARY SIMON: They don't in the pure sense
of the word have the ability per se to strangulate this economy.
The point is that today we are dependent on foreign oil and
for the last three years every imcremental barrel, every addi-
tional barrel of demand in this country came from the Arab
countries. 40 percent of our oil is not strangulation, but
each year our dependence grows on these people because our
demand grows, and one can say that if we did nothing, just as
we have done for the last three years when the warnings for
years of experts was finally heeded, if we continued it would
be a very short period of time until we were 50 or 60 percent
reliant, and at that point I think the consequences would be
rather severe, to put it mildly.
Q
Mr. Secretary, assuming that you get the economy
humming again, what is on the drawing board to keep us from
getting in this same position later down the road?
SECRETARY SIMON: Well, the President started out --
you know, I skipped over it here for time, but it is a tech-
nical subject, economic policy and what causes inflation. I
am not a monètarist. I wouldn't want to get into the intrica-
cies of monetary policy. But one can simplistically say that
inflation is caused by too much demand chasing too few goods
and the root of it is there.
There are many other things that occur along the
line, but we start out with the massive budget deficits that
I described and then we talk about the demand that creates on
the economy and then we talk about the money that has been
to be created to finance this demand. Ultimately we end up
in the soup that we are in right now.
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The money has been created, economic activity
picks up, and there you are back right to what you described.
That is why the President put a moratorium on new spending
during 1975. In other words as the new bills come down
from the Congress they will be vetoed by our President,
new bills outside this budget with the exception of energy
legislation which is deemed obviously necessary for other
purposes. That effectively commences to curtail the growth
in Federal spending and that has been the problem, just the
exponential growth in Federal spending where it has grown
in tremendous rates, expecially these last 10 years.
Putting a five percent cap on pay increases and the transfer
payments is another important element.
Q
Mr. Secretary, two questions: Was the
President in fact saying last night that if the Congress
did not act, he might withdraw the tariffs, thereby really giv-
ing the Congress what they want him to do now, namely
delay action?
SECRETARY SIMON: If the Congress did act?
Q
No. The President said last night that if
the Congress did not act on the rest of his programs, he
might withdraw the $1 a barrel tariff later on.
SECRETARY SIMON: Well, I think the President will
keep his options open in every area, but I didn't derive
that from his answer. He expects Congressional action on
the package that we set up. Obviously, there is going to
be debate and there is also going to be compromise in certain
areas, but he wasn't spelling out a particular compromise.
It is his intention to bring it back to $2 a
barrel, obviously, when the package goes into place.
Q
My second question was, Mr. Secretary, I
recall when you were Federal Energy Administrator and the
ration coupons were printed that it was then said that the
reason for printing the coupons was that a program could
be put into effect within six weeks to three months. Why
is the Administration now saying that it would take six
months to put a program in effect?
SECRETARY SIMON: Well, when it would be completely
humming the way you would want one in setting up all of
these boards, but it probably could be done in -- we said,
I believe, at that time in three to four months and I think
it probably could be done in that period of time. We would
have certainly done it but it would have been six months
or maybe even a little longer before it was functioning the
way one would want it to function.
Q
Mr. Secretary, are there as great and as
unequal penalties for regions and States in the energy
program as the Mid-Atlantic and New England Governors believed
after their meeting yesterday?
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- 13 -
SECRETARY SIMON: Well, in the equalization
program, the entitlements program which Frank Zarb will
spell out to you in detail when he gets here, this tries
to equalize the price that our consumers pay all over the
United States. Ultimately, when the entire package is
passed everyone will be paying the same price for oil,
but right now New England will get a break by getting a
rebate through the entitlements program on imports until
the whole program comes into effect.
Q
Mr. Secretary, there seem to be as many
economic policies as there are economists. What makes you
so sure that your program is going to work and what makes
you so sure it is going to work within the next three to
five years?
SECRETARY SIMON: Well, I don't think there are
as many economic policies as there are economists. I think --
well, you have got obviously two schools of economists and
to say that you are going to get unanimous agreement from
that group is not accurate as everybody in this room
understands.
Economic policy-making -- and this is the one
thing that is the most difficult thing to get across in
this country -- is that the President puts forth an economic
policy on October 8th, and that economic policy is to deal
with the problems that we know exist, the events that we
know have occurred and forecasting the future, which is
imprecise at best. Many events have occurred since October
8 including the most damaging which was the destruction in
consumer confidence for reasons we believe that I mentioned
in my brief opening remarks.
Now economic policy is an ever evolving affair,
one that recognizes these events and special factors that
occurred that were not forecasted or events that happened
that were in excess of what our forecasts might have been,
and policies shift to take care of that and remain
flexible. Basically, why do we believe the economy is going
to improve by summer? You can see that a lot of the things
we were saying in October and November about inflation are
coming true today. Inflation rates are beginning to recede,
and they are going to be very evident in the lag --
indicators show there is always a three or four month lag --
by February, March and April of this year.
When the inflation rate recedes in anticipation
of this and in recognition of this, interest rates commence
a decline as monetary policy has become more expansionary.
You have a decline of about 4-1/2 percent in short term
interest rates. I am not talking about the prime rate
but the bellwether commercial paper and Treasury Bill rates.
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What happens when interest rates decline? Money
starts to flow back into the thrift institutions, the savings
banks, the S&L's, the commercial banks. Housing begins
to improve. We had housing permits rise for the first
time last month in many months. We have had two and a half
months of solid money flowing back into the thrift institu-
tions.
Housing traditionally leads our economy out of
a business recession. Housing is always very buoyant
during periods when labor and resources are plentiful, so
all of these events that are occurring show that this is
the first harbinger of a housing improvement in the spring.
And this doesn't only come from Government economists who
make forecasts.
I just met with a group this morning of business
economists and academic economists from all over the country,
and their predictions are not whether housing would improve;
their predictions are -- differences of opinion, I should
say, as to what degree housing will improve, and they are
all around a million and a half housing starts next year
and that is significant improvement.
But what happens then? When housing improves,
appliance sales and relevant items for purchases of these
household goods begin to improve. Consumer confidence
begins to improve, and they, of course, are the two weakest
sectors of our economy.
The inventory problem that business is having
today, they are working off their inventories. Automobiles are
giving large cash bonuses for purchases and while it is
too early to really get a fix on it, the immediate effect
was an up-tick in automobiles.
I just met with the people from one of the large
automobile companies and their forecast is a good deal
higher for 1975 than for 1974 by several million automobiles.
So all of these things combined, recognizing there are
still going to be lag weaknesses and a slack between demand
and our capacity to produce, which is good because we are
still going to have an inflation problem, let's not forget
that, and that is when we must become moderate as far as
our expansionary monetary policies are concerned and make
sure that we don't overheat the economy again in the process
and end up back in the same mess we are in today.
Q
Mr. Secretary, what about the process of
increasing the cost of food stamps? Isn't that really
adding more weight to the burden on the poor people who
have to use food stamps, the inflationary burden?
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SECRETARY SIMON: Well, really, obviously, any
higher costs are going to have to bear a hardship, but
in this instance we didn't believe that that hardship was
that great in measuring everything that has to be done
across the whole economy because food stamps are just one
program, and what we are trying to do is take care of an
awful lot of the loopholes in that program which aren't
easy to close up, such as college students when they go
on all of these many holidays that your children and my
children get from their colleges this year which is more
expensive, as Buchwald wrote a couple of weeks ago, than
the tuition in the colleges themselves.
I wish they would stay in school. But they are
eligible for food stamps. I want to add that my children
don't get food stamps, but we know a lot of them that do.
And there are a lot of loopholes in this program. But
food stamps is only one welfare program.
Q But isn't it in fact a 20 percent increase
in the cost of food for persons using food stamps?
SECRETARY SIMON: I am not sure of that number.
Q
It is about that. That is a big jump.
SECRETARY SIMON: I am not sure that it would be
a 20 percent increase across the board on food stamps. I
doubt that sincerely. I think that we are talking about an
increase at the margin.
Q Mr. Secretary, when President Ford came in
he said that he wanted to work with Congress. Then when
he announced his oil policy and energy program here, he
said that it was something that was going to take bipartisan
support for it to work. Then he went ahead and signed
the oil tariff without Congress, and Congress now is
proposing legislation that would have a rebate factor in
it if they decide not to go along with it to overrule it.
How does this all jibe?
SECRETARY SIMON: Of course it jibes. When you say
he signed the oil import tariff without the Congress, we
don't go to Congress. The President doesn't go to Congress
ordinarily to seek legislation for a power that already
exists in his office.
Now, as I said, we have talked a great deal in
this country for a couple of years about our energy
problem and there have been hundreds of hearings held on
the subject and lots of rhetoric and no action. What a
leader is supposed to do is to provide leadership, and he
has put a comprehensive plan in front of the American people
to deal with our economic problems and our energy problems
designed to solve them, and action is required right now.
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Q
Congress is very worried about the inflationary
effect, as I understand it, of the tariff throughout the
entire economy. They say they want to look at the program
closer.
SECRETARY SIMON: They have had two and a half
years to look at the subject of energy and come up with
alternative programs, and I don't know what is going to
happen over the next 60 days or 90 days, but I will be
interested to see what program they come up with and what
changes they wish to make. We have said it is going to
have the one-time inflationary impact. That is one of the
seemingly conflicting aspects of dealing with a problem.
We deal with problems here in this country
traditionally in a short term fashion with ad hocs and
bandaids, and our long run objectives are often sacrificed
as a result of it.
Sometimes you do the seemingly contradictory, such
as put a program into place that has a short run inflationary
problem in order to bring on more supplies later on and to
conserve as far as our balance of payments with the wealth,
or in the amounts that it is flowing out of our country each
year -- $25 billion went out of this country last year to
pay for our oil. In two or three years, $32 billion plus will
go out.
What does this do to the strength of our dollar
abroad, our balance of payments? No, the time to stop it
is right now.
Q
Is the Administration then expecting a
major battle with Congress and not the support they origin-
ally talked about?
SECRETARY SIMON: I testified on this and other
aspects of the package for two days before Ways and Means
this week and I understand the Ways and Means Committee
is voting this afternoon on the import bill of Congressman
Green and I would hope that Congress would let the President's
powers remain as is.
Q
Is that a constitutional challenge to the
President's powers to use the use of a device of an amendment
on to a debt limitation bill to attempt to thwart his efforts
in this regard?
SECRETARY SIMON: The debt limitation bill has
always been a very tempting vehicle to tack pet amendments
on of all sorts. Last June they tacked a 20 percent increase
in Social Security benefits on our debt limitation bill
and, of course, the President signed it. And it is
unfortunate because, you know, people mistakenly -- and there
are so many facts and figures on this subject where people
had mistaken impressions about what the true facts are.
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People say, how can you say Social Security should
have a five percent lid. Some people think that a five
percent lid means that we are cutting benefits five percent.
We are not cutting benefits at all. We are keeping the increase,
cost of living increase down to five percent which means
still that over $7 billion will go for cost of living
adjustments in Social Security this year. Also, the most
important fact is that over the last four-year period
inflation is up 30 percent in the United States, Social
Security benefits are up 47 percent, and so they have not
been -- they are away ahead of the cost of living.
Q
Mr. Secretary, a two-part question. There
has been concern over the increasing cost of oil from
Canada and one suggestion was made that perhaps all
Canadian oil that flows across the United States would be
taxed. Is this likely to happen?
And secondly, do you anticipate any softening on
the part of the Canadian government to make more oil
available to the United States?
SECRETARY SIMON: I will answer them backwards.
We have been working with the National Energy Board for
the last year and we continue to, on making sure that they
will coordinate their oil and energy policies with us. You
know, they have got a problem in Canada and sometimes we
only look at our own problems.
Let me get to your tax problem. Of course we are
going to tax -- I believe it is included in our tax package,
but that has nothing to do with the cost of oil from
Canada. Let me tell you about Canada's problem and I think
this might help explain it.
Canada has no way to deliver oil from where it
is produced to the East Coast, so they produce all this oil
in the West. There is no way to get it East and so they
deliver it down into our Midwestern States and they sell
it to the United States and they take care of our whole
upper tier of States in our country, the Middle Western
States. So this leaves them a shortfall, and so they
import from Venezuela and the Persian Gulf through the
East Coast.
So last year, December of '73, the Arabs quadrupled
the price of oil. So they are bringing in OPEC oil into
their East Coast potentially at four times the price that
they are selling it to the United States.
Well, politically, this can't fly up there, and
it obviously was very bad for their balance of payments.
They are generally in balance. They export to us about the
same amount that they import through the East Coast, so they
did two things. They said, what we have to do, recognizing
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that we have to be oil independent and energy independent,
we are going to build a pipeline to deliver our much needed
supplies to the East Coast, and we are going to gradually,
over the next decade, reduce our exports to the United
States so we will be reducing our dependency upon OPEC,
the same thing, of course, that we are trying to do.
In the meantime, they are charging the United
States the same price, selling us the oil down in the
Midwest, that they have to pay for oil coming into the East
Coast. You know, it is kind of the same thing that if we
were exporting oil off California for Japan or somewhere
else and importing a like amount into New Jersey; it would
get equalized, I promise you.
We have seen equalization happen already in this
country and they intend to work with us to make sure that
as they cut their oil back to the upper tier of States in
our United States, that as our additional supplies and
alternate supplies are brought on-stream, so that the least
possible hardship will be brought.
Q
Mr. Secretary, in your talk with the auto-
mobile executives today, did you get any closer to a commit-
ment from them on increasing the efficiency of automobile
engines?
SECRETARY SIMON: No, that commitment was already
made several weeks ago. I wasn't talking to automobile
executives today. I was talking with the financial economists
from all over the United States that we bring in regularly
to the Treasury Department. We have a consultants group
that Paul McCracken chairs, and I meet with them, oh gosh,
about once a month, once every six weeks with various topics
and we try and get a broad picture of what is occurring in
the economy from both the academic economists' points of view
as well as the financial economists' point of view from big
business and little business, housing, and every component
of our economy.
Q
Mr. Secretary, if the oil tariff is going to
work in reducing imports, people have to resist spending
money for that higher priced energy and use their tax rebates
for other purposes to stimulate the economy.
SECRETARY SIMON: A portion of that will occur.
Q
Can you tell us by how much the average
American family will have to reduce the consumption of gasoline
or heating oil or electricity in order to make that tariff
work?
SECRETARY SIMON: That is a matter of usage per
income class, because we have made our assumptions, and lots
of people made assumptions -- Brookings Institution made
theirs a few months ago and ours are a little bit higher as
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far as the average cost of fuel per income class. So it
depends per income class how much has to be saved.
There is no blanket percentage. It would be
different for each income class. But you see, it is much
easier, and it is not just the import fee, you see, that
saves the imports. It is the overall price, the domestic
excise tax, the decontrol, the windfall profits tax that we
bring in that give us the saving.
Just pure gasoline doesn't save as much because
your ability, if you have got a new car that only gets nine
or 10 miles to a gallon, maybe you can't afford to trade
it in or maybe you like it and you would rather save some-
where else.
There is much greater ability to save heating oil,
for instance, where you can turn the thermostat down and
wear a sweater in your house as we did last winter, and a
lot was saved, or turn electricity out. Lots of people
have done that. There are many ways to save and in the
short term much better ways to save looking over the whole
barrel rather than gasoline.
In my testimony you will see that to achieve the
same saving, if we just wanted to focus on gasoline, you
would have to tax gasoline in the area of 50 cents a gallon.
Q Mr. Secretary, on that point, 50 cents a
gallon, in view of the fact that the Europeans have from
all evidence failed to reduce the consumption of gasoline
with some of the highest prices in the world, $1.60 in
France, a couple of dollars in Italy a gallon, and this has
not prevented Europeans from flooding the streets of Europe
with their automobiles, on what basis does the Administration
think it can cut gasoline consumption anyway with even
putting a 50-cent a gallon tax on it?
SECRETARY SIMON: See, unfortunately, what you are
saying is not true, and that is the sad part of the myth,
you see. When you say gasoline, as I said is a small part
of the barrel, do you know what the refineries produce
gasoline in Europe? I think 18 percent of a barrel in
Europe goes to gasoline. Here it goes to 40 because we use
all the big cars. Every car over there just about is a smaller
automobile that gets 25 miles to a gallon. That is one of
the first things.
They use much less gasoline because the price is
so high than the per capita United States citizen.
Number two, they had saved more energy per country
in the major countries than we have, and they have done in
the industrial area and they have done it in the heating oil
area, but their ability to save further gasoline, just auto-
mobile consumption, is far less than ours because they don't
percentage-wise use as much gasoline as we do.
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Q
But, Mr. Secretary, their average income is
much lower than the average American, in some countries in
any case. Certainly in France. And I was in France not too
long ago and those streets are as crowded as they ever were.
Maybe even more SO.
SECRETARY SIMON: Sure, and all with automobiles
that miles per gallon are almost double ours.
Q All right. Doesn't that say something to
our automobile makers?
SECRETARY SIMON: Let me tell you what it says to
our automobile makers. The automobile makers listen to the
buyer. I guess we can point ---
Q
To the buyer?
SECRETARY SIMON: That is exactly correct. It
says it to the buyers, and that is what the higher price does,
so then they say, no, I won't buy your gas burners any more;
I want to buy a more efficient automobile, and it is then
when Detroit responds. But you know you can go back a
couple of years, three, four years, and take a look at
American Motors building a smaller automobile, and had very
little success in selling them. Cadillac and Lincoln, my
goodness sake, we haven't had any trouble selling
8, 9 and 10 miles per gallon automobiles in this country.
It is a big car economy and this is going to change, the
exact same way that it changed in Europe, but not as rapidly
because there is a hell of a lot of difference between
$1.50 gasoline and $2 and our gas that will go up to about
63 or 65 cents.
Q
Mr. Secretary, I just got a note that the
Ways and Means has voted to prevent the President from
imposing this import tax and also voted against increasing
the debt limit. Would you comment on both of those actions?
SECRETARY SIMON: Well, I am disappointed that they
voted against the President's ability to impose this tariff.
Now we will have to wait and see what happens on the Floor.
But as far as the debt ceiling, you say they voted against
the increase in the debt ceiling?
Q According to the note I have, the Committee
also voted to limit the debt ceiling.
SECRETARY SIMON: Oh, no. Well, that is not what
that means. I was hoping maybe if they voted not to increase
the debt ceiling then we could close the Government and half
of our problems would be over. That is what I told them in
testimony yesterday. They said, what would happen you
know they love to sit there and say, this is the most horrendous
number I have ever seen, as if it were us who passed the
legislation. And I don't say it is Congress, because I have
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never been one who sat down here and pointed my finger up
to Capitol Hill and blamed them for doing everything. It is
Government, and it is just as the American people perceive.
It is Government.
Government is the Executive and the Legislative and
the Judicial and we spend their money and we spend too damn
much of their money. So it doesn't do any of us any good to
demagogue. Let's begin to do something about it together.
Now when they say limit our debt ceiling, I asked
for an increase through fiscal 1976, and as I said, recognizing
that I wouldn't get it. They like to have the opportunity
every two or three months to bring the Secretary of the
Treasury up and beat on him for a few hours about everything
that is wrong, and that is all right. I enjoy that dialogue.
So I will say what they probably did was give us
an extension until June 30, 1975, for $528 billion, which
is, I think, our compromise number and that will unfortunately
enable us to continue in business.
Q
Is there any middle ground on the tariff now?
Is this going to force a confrontation between Congress and
the Administration?
SECRETARY SIMON: Well, you know, you keep using
this word "confrontation." We have a difference of opinion,
and we are going to fight for the President's ability, which
is very clear legally, to impose this tariff.
Q
Where does the bill go from here?
SECRETARY SIMON: It goes from here to the Floor of
the Congress and we will hold hearings, or we will go testify
at hearings in the Senate after that. And so we will just
continue to fight for this program.
Q
In the meantime, the tariff will go into
effect?
SECRETARY SIMON: The tariff goes into effect on
February 1, as the proclamation states that the President
signed yesterday, yes, sir.
Q
Mr. Secretary, Congressman Patman's bill,
which I believe he introduced yesterday, which he says will
pump a lot of money into the thrift institutions and would
thus generate according to many some $20 billion in helping
the housing industry.
SECRETARY SIMON: I haven't seen Congressman Patman's
bill, but when we talk about pumping $20 billion into
housing, we pumped over $20 billion into housing last year,
and these inefficient Government subsidies, guarantees and
lending subsidies to housing, again, is just more of these
bandaids that really don't do the job.
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The best way we can help housing, just like the
best way we can help our economy and basic business and the
American people and most expecially the poor, is to have
sound economic policy and responsible fiscal and monetary
policies that bring with it reasonable interest rates that
allow housing to prosper as it does during periods when all
these are extant.
Q
So far I know you have some plans to look at --
they sound pretty good but I don't see any real sign -- you
say that inflation is caused by Government spending,
Government borrowing, big factors. What are we doing ---
SECRETARY SIMON: And the money supply.
Q
--- Government deficits and hundred, billion,
million, whatever increase you want in the debt ceiling.
Where are we going?
SECRETARY SIMON: Well, the one important thing
to understand, and this is the most difficult part of it,
is that there is no instant or fast solution, no miracle,
no magic wand we can wave and the problem is going to be
solved. It took us many years of these policies to get in
the mess we are in right now and it is going to take us
years to get out of it. And the first step toward bringing
back fiscal responsibility in this country is the President's
first step of putting the absolute ceiling on spending
during 1975, and that is a rather dramatic step.
Congress is going to have to pass no more legis-
lation for the next 12 months. That would be an extra-
ordinary accomplishment for Congress.
Number two, they are going to have to pass the
$17 billion in deferrals and recisions that the President
has sent up there. But we are going to have results. We
are going to have results and they are going to be positive
results if we can get all of the things done that I outlined.
Q
You think this Congress is going to give him
that?
SECRETARY SIMON: I testified for the first time
before this new group yesterday and they have, I believe, 12
new members on the Ways and Means Committee, and I was very
impressed with their thoughtfulness. But we will have to wait
and see what kind of a voting record -- but I don't blame you
for being skeptical. The American people ought to be skeptical
and they ought to be a lot more than skeptical. They ought
to be demanding; they ought to be demanding to the Congress that
they elected, the old ones and new ones alike, to come down
here and join with us and let's work together to fight this
problem and beat it once and for all, not just on a temporary
basis and restimulate everything again, and be back on the
same parade we have been on so many times in the past when
people begin to say, my God, the Government can't do it.
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You question the ability of democracy to beat
inflation. Well, I don't, and let's stay and work and
fight together because it can be done, but it is going to
require courage and wisdom and perhaps you might say
uncharacteristic wisdom. Well, let's exercise some.
Thank you, gentlemen.
(Applause.)
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MR. WARREN: Thank you, Your Exchequership.
You know, they used to say that Bill Simon and I
look a little bit alike and I hope that is the case There
hasn't been much humor in this room up until the time that
Secretary Simon said we might have to close down the Federal
Government. That always seems to trigger a little bit of
humor, but be that as it may, you have heard, I think, from
one of the three men who knows as much about the decision-
making process that led up to the President's proposed
solutions to these complex problems.
You will now hear from one of the other two of
these gentlemen, and that is L. William Seidman -- Bill
Seidman -- who is Assistant to the President for Economic
Affairs and Executive Director of the Economic Policy Board.
He is also a member of the Energy Resources Council, so he
knows both sides of it.
Prior to these appointments Bill Seidman was
Assistant to the Vice President, Vice President Ford, for
Administration. Before that, as you know, he was national
managing partner of Seidman and Seidman, Certified Public
Accountants.
Now, Bill, we have people here, I am told, from
Canada, Honolulu and Shreveport, and in case you are think-
ing about dredging up any of your old stories, I am told
there are two gentlemen here from Grand Rapids, so be
careful.
Bill Seidman.
(Applause.)
MR. SEIDMAN: Thank you.
After that pep talk by Bill Simon I feel I should
come charging out of the chair and give you the instant
answers that we have developed for all the kinds of prob-
lems that he has been talking with you about, and I will be
happy to kind of take up where he left off on questions and
answers and see if we come out in the same place. I think
we will. But before that, I have been asked to give you
just a little look at how the economic policy of the Admin-
istration is being developed and to tell you what the systems
are, perhaps get your comments on that, and a little bit of
perhaps a longer range kind of look at economic policy.
As you know, when Vice President Ford became Presi-
dent, he reorganized the economic policy-making and set up
the Economic Policy Board, which essentially consists of the
heads of the Council of Economic Advisers, the Secretary of
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Treasury, the head of OMB, the Executive Director and the
head of CIEP, the international economic policy organization.
And after they met a few times and tracked down the various
committees that were operating in this field and attended a
few of the meetings, they found that there were 465 guys
that would get up in one room, move to another, two of them
would join them, and they would have a different committee
meeting.
So one of the greatest efficiencies we brought to
Government was to disband all the other committees and have
the two guys come into the room where the five guys were,
instead of having the five guys move, and in essence made
one committee on economic policy, and then they bring in for
agriculture, the Secretary of Agriculture, or whatever the
thing may be. This is somewhat modeled after the way the "3
NSC works in the national security field, and to some extent
the way the Domestic Council works in domestic legislation.
So if you look at sort of policy-making, there are
these three bodies that are principal coordinating groups.
Now the thought of having an economic policy board was that
there needs to be a place in the Government where the various
views, both from outside of the Government and inside of the
Government, are brought together, evaluated and packaged,
and put into shape for the President to make his decisions
and the basic purpose of this board is to make sure that the
views of people in the various branches of Government who
have an interest in particular economic policy are brought
in and considered, that the views of outsiders are brought
in and considered, and you remember the Summit Conference
that took place which was a sort of a major start on that
project was to make sure that the President has, when he
has to make some of these very tough calls, a chance to look
at a broad spectrum of views and not only of the people who
are on this board, but of a great many others who present
their ideas, and the board has a chance to look at and make
sure that they are put together in a way that the President
has a real opportunity to see all the kinds of possibilities
before he has to move into these decisions.
How does it actually work? Well, not as well as
we would like, but perhaps some improvement over the way it
has been. And how does President Ford work with us?
Generally, the basic kinds of topics are sent in to him ahead
of time for consideration of the kinds of policy questions
the board thinks he ought to consider. He may then send
back and instruct that he wants it broadened, or he may indi-
cate that that is a satisfactory agenda.
Then usually eight to ten people involving the
board and others particularly concerned meet with the Presi-
dent, the various options are discussed, he asks questions,
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he gets into the details, he asks for the pros and cons. Then
we usually go back to the drawing board with those kinds of
questions with perhaps a narrower range of options and go
through the process again until the decision is finally made.
It is a long and time-consuming type of process, but it is
not made on the basis of one or two people in the backroom
whispering in anybody's ear. It is generally made at those
kinds of meetings. Usually the Federal Reserve, in the person
of that oracle, Arthur Burns, is there to participate and
every attempt is made to see that every branch of the Govern-
ment that can be involved is, in fact, there to work on these
various kinds of things.
It involves not only basic long-term thinking, but
also the kind of short-term things which have great economic
impact. The problem, let's say, for example, of Pan Ameri-
can or Penn Central, when that becomes a basic economic issue.
A look at the law of the sea and the problems which are
economically involved in that. The kind of things that
involves the whole foreign air transportation and what is
best for the economy in those areas. That is the kind of a
process by which we get, hopefully, a real exposure to all
alternatives and the right, or at least the best, answer.
Now whether there is a right answer to any of these
things is something that only time can tell for sure. Some
of the kinds of things that have been identified by this
board were mentioned by the President in his last speech
when he started talking about the trends or the trendlines +
that have been studied and which the board and then the Presi-
dent believed were going in the wrong direction.
One thing that you usually try to do is not only
determine where you are, but which way you are going, and
I think that our studies in that area have identified a sub-
stantial number of areas where the trend, if continued,
seemedato be leading us in the wrong direction. That is why
the President in several of his recent speeches has talked
about a new direction or a different direction. A chance to
make some of these things which, if continued, will basically
change our way of life.
Obviously, energy is one of those. You have heard
Bill Simon talk about that. Our energy dependence. We are
going in the wrong direction. What do we have to do to
change it? Our investment in industry, we are going in the
wrong direction. The investment is going down. Where you
have an expanding labor force, the investment is going down.
The estimates of what we have to accumulate over the next 15
years against what we are doing shows a staggering gap.
What are we going to do to change that direction?
What are we going to do about the fact that at the current
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course and at the current rate of programs Federal spending
will become over 50 percent of our total GNP in the not too
distant future. If you believe that is the wrong direction,
how do you turn it around? What do you do in the tax field
where we have gotten increasingly progressive taxes because
of inflation? How do we turn that around?
In fact, if you looked at just about any of the
economic indicators that one would normally use in trying to
determine whether an economy is going in the right direction
or not, you find, I am afraid, that in this economy there are
just a great many of them that are going in the wrong direc-
tion and you can see pretty clearly where you will end up if
you don't change those trends. Part of that is obviously
agreeing on where you want to end up, and those are the kinds
of questions that this Administration hopes will be debated,
will be a part of a less hectic perhaps and more considered
study, and hopefully those trendlines that are going in the
wrong direction will be turned around.
There is a whole series of areas we could talk
about. Regulation is obviously one. Financial institutions,
the whole area of debt, and the, I think, admittedly very
dangerous trendline towards increasing debt in our corporate
setups. Any of you who have been in the financial field,
take any of those financial indicators and look at them and
just carry them on out for another 10 or 15 years in the
direction they have been going for the last 10 years and I
think you will find that you will come to some places that
you really don't want to be.
So that is kind of the basic approach that is
being taken. Obviously the President has been there about
five and a half months. He inherited an economy that was
in the highest peacetime inflation we have ever seen, and
one that was suffering obviously from the kind of jolt from
farm prices and oil prices that we have never seen before,
and I guess we would say in terms of that and looking to
what we really have to do, the fact that all matters are
neither solved nor cured at this point, we would say let's
study the real problems, let's study the real direction we
are going, and let's come up with some well-conceived, long-
range answers while we are working on what have to be some
obviously emergency-type programs in our current situation.
I think now rather than go on, I will be glad to
answer any questions that I can, either on this or anything
else.
Q
The President said last night and it was
confirmed in his briefing this morning at the White House
this import tax on oil would add about three cents to the
price of a gallon of gasoline at the pump. All of the
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economists we have talked to in Michigan and the people who
process and sell gasoline think that price is going to go up
as high as 15 cents a gallon. I notice Mr. McCracken said
yesterday on Capitol Hill it would increase the price level
overall 2 percent, adding to the inflationary spiral. I
merely question the three-cent estimate that came out of the
White House.
MR. SEIDMAN: I believe that is a confusion between
two different programs. The President has now put an import
duty on foreign crude. That is only 40 percent of the total,
and based on that, and when it goes to $3, which is what he
proposes to do, then 40 percent crude will be at $3 and that
will come out to about three cents a gallon.
When the total program is put on, that temporary
action will be revoked and there will be a $2 tax on all
oil, not just imported oil, plus there will be deregulation
of old oil. That is the overall program. That obviously
creates a much higher increase and that is where you get your
10 to 15 cent figure, so the confusion in the figures is the
temporary program which when in place will be two to three
cents, and the overall program which when in place will be
in the 10 to 12 cent area.
Q Everyone talks about the increase in the
price of gasoline. Isn't it also true that these regulations
when put into effect are going to result in a sharp increase
in the price of utilities, electricity, heating oil?
MR. SEIDMAN: They will certainly result in an
increase in the price of utilities where they are using
petroleum, gas or oil, as their source of heat. This is,
of course, a part of the total theory. I mean if energy is
precious, if under anybody's system, no matter what we know
as far as oil and gas is concerned, we might have a hundred
years' supply of it left in the world, then it is important
to try to limit its use in all areas, not simply in gasoline.
It is the same use of this very scarce resource
whether you use it in petrochemicals to make children's toys
or whether it is used to make power, and especially in that
area the hope is that we can convert to coal or nuclear where
we have the potential for many hundreds of years of resources
so, yes, it certainly will in those areas increase prices.
Q
We have been spending most of our time today
talking about energy. In Secretary Simon's opening remarks
he listed the problems that face us as recession, inflation
and energy independence in that order. I notice in his testi-
mony at Ways and Means he listed them as inflation and reces-
sion. He switched those two and still had energy third.
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What in your view is the ranking of the problems
that we face? Is energy the root of all our problems or have
we got more serious problems?
MR. SEIDMAN: No. I think that the energy situation
is sometimes put into the middle of the economic problem in
a way that it is perhaps a little confusing. Go back to the
fact that as far as energy is concerned, it is both a question
of our independence and an economic problem in the terms of
the amounts that we are paying abroad for very high-priced
oil.
In the short run, anything that has been suggested
to help reverse this very ominous trend in energy is not
going to be helpful to the economy. No one has suggested, I
believe, that you would reverse the energy situation and in
the short run help the economy, because you are going to be
reducing consumption one way or another, by rationing or by
price, which will tend to reduce GNP and in either rationing
or the tax system will tend to increase price.
So I think there has been a kind of a confusion in
this area. That doesn't mean that we don't need to do this.
There is never a good time to do something that is painful,
but the fact of the matter is that reversing our position in
energy and the process of doing it is going to add pain to
our economic situation. It requires some sacrifices.
As far as the economy is concerned, very clearly
recession has become a major concern. Inflation is still a
concern, even though the trend in that area -- and that is
one of the few -- has at least turned now in the right direc-
tion. And with that in mind and with the things that Secre-
tary Simon said, we need to concentrate on the recession and
the problems of the recession, I would say, as our primary
emphasis.
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Q
Can you explain how the Administration's
economic advisers could have so badly misjudged the direction
of the economy that only a matter of a few months ago the
President told the Nation that we had to have a tax increase
and now he is telling the country we have to have a tax
reduction?
MR. SEIDMAN: Well, let me start by saying that
somehow or other a really rather comprehensive economic
package, most of which still is necessary and valid, got
tagged onto a 5-percent surtax on, quote -- and I mean the
upper 25 percent of the people involved.
It was $2-1/2 billion and it was an attempt to have
those who were able, under all the studies we had, to pay a
small amount to take care of what we foresaw as increasing
unemployment. That was the basic analysis at that time, and
the other part of the tax on corporations was just a reshuf-
fling from an adjustment the tax rate, a little higher
tax rate, and a return through the investment credit in
order to try to stimulate more jobs through the investment
credit.
So I think, when you look at that program, unfor-
tunately -- and I think it may have been our fault -,- but a
whole program which had many, I would urge, constructive
and long-range desirable aspects, got tagged with this one
little part which nobody ever really understood all out
there that it applied really to some 20 to 25 percent of our
population and even to them in very minor amounts.
Now to go on to the error of forecasting, as you
know, at the economic summit, we had, I guess, about as
broad a collection of the people in this country who ought
to know and be able to forecast the economy, and we spent a
great deal of time getting their views and analyzing them.
Their views varied some. They all saw a slack
economy coming, as did the Government economists, but no
one, not one single one of them that you can find -- and you
can go through the material -- foresaw anything like what
happened in terms of consumer confidence and the very sharp
drop in big-ticket items.
Now, the computers didn't work, the guys who read
the stars didn't get it, there were none, no one there. The
two that came the closest, I think, were the General Electric
people and our good friend George Meany, who warned that we
had better put a little more emphasis on recession; but no
one came close to seeing how sharp this drop would be, so
I guess we can say only that we did assemble the best
resources that we could find in this country.
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I am not sure we asked the TV people what their
forecasts were but it probably would have been better, but
we did make, I think, a conscientious effort to get the best
brains we could together and unfortunately none of them
were right.
Q
Two questions. First of all, would you spell
your last name?
MR. SEIDMAN: S-e-i-d-m-a-n, pronounced "Seidman";
I don't know why; that is the way my father pronounces it.
Q
For a prognosis of the future you might check
with the Channel 4 weatherman.
MR. SEIDMAN: I am sure that, based on the past
record, he would be just as accurate as anything we could
find any other way.
Q
Do you share Mr. Simon's opinion that it will
be three to five years before we can anticipate a sound
economy?
MR. SEIDMAN: That is a pessimistic note. I
didn't hear him say that. I always share Mr. Simon's
opinions, so in general I would say, yes, we come out unified.
I would have to hear him define just what he meant. It is
not going to be, however, easy or quick, if past history is
any indication, to move the economy back into what we hope
will be full production.
I think you have to see if everybody is working,
then normally the economy is increasing each year and you are
dividing up the increases. Now we are dividing the decreases
and, as long as we are doing that, we have a very unpleasant
and unsound economy. I would hope that, if you define it in
terms of increasing GNP, it would be before then.
Q
Mr. Seidman, in mentioning the failure of the
people at the summit meetings to foresee the drop in purchases
of big-ticket items, are you taking into account that the
President, following the economic summit meeting, gave a
speech which left the impression that he was recommending
that people refrain from making purchases that were not
necessary and that perhaps that contributed to a drop in
purchases rather than indicating a lack of foresight in the
economists at that conference?
MR. SEIDMAN: Well, I don't want to be technical
with you, Irving, but what the President did in the speech in
Kansas City -- which is, I believe, the one you are referring
to -- was quote the recommendations that he received from
the now famous WIN Committee as to what they thought ought to
be done with respect to inflation; and I think that the
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President's position has been, right along, that when things
are tough you need to buy wisely and carefully and that that
has been his basic position.
To the extent it was interpreted as being his state-
ment, it may have had some effect and it probably came, if
that is so, five months or four months too late. It probably
would have been better a little earlier.
Q
Mr. Seidman, going back to the last three or
four minutes of Secretary Simon's presentation, is a long-range
economic policy really possible under our system of Government?
MR. SEIDMAN: Certainly those who have the responsi-
bility of developing policy can try to identify where we are
going under what we are doing now and identify where we ought
to be going or hopefully get some kind of agreement on where
we ought to be going and then discuss the specifics of how to
get there.
It then becomes a political question. It then
becomes a question of leadership and how you move from where
you believe people ought to go to actually get there, and
that is the whole thing that it is all about down here.
Q
So what you are saying, in essence: Regard-
less of how good the program is put together by the advisers,
in the end it will be a political determination whether or
not that program is implemented?
MR. SEIDMAN: Well, that is the system we use here,
that is right; but it is very important that, if that program
is sound and if it does appeal to people as being reasonable,
they will support it and that is how it will get done. So it
is most important that the kind of programs you come out with
do identify trends that most people feel are wrong and that
they would like to go another way.
Q
Mr. Seidman, if I read you correctly, you have
been telling us a lot of informed, learned people have been
wrong about the economy. I asked Mr. Simon a comparable ques-
tion; I would like to hear your answer. If all. these learned
people have been wrong, what makes you so sure that we are
right at the moment?
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MR. SEIDMAN: Well, confidence is born out of faith,
you know, and the reason people were wrong in their econo-
metric models is because they assumed that all of you good
people and the rest of the people would behave as they had
in the past or in the more recent past. The fact of the
matter is that they really haven't. They have started to
greatly increase their savings. They have decided that
they would defer purchases. Maybe they decided they would
change their life-style.
At that point all the computers and the past
formulas that have been put in go out the window. You can
only try to predict the future, as we all do, based on past
behavior and looking at the kinds of things to which people
normally react.
I think you can say that based on the best
judgments that we can see, that these kinds of things that
Secretary Simon talked about will in fact happen. We got
no guarantees at the Summit Conference from anybody and I
suppose that economists have learned to be very sparing with
their guarantees as a result of that.
Q
Then are you really saying that we don't
know, that this is a kind of calculated ---
MR. SEIDMAN: No, I don't think that. Everything
we know in this world is a matter of judgments, as to is it
going to come this way or is it going to come out that way.
I mean you don't even know the sun is going to come up
tomorrow but your past experience does lead you to that
belief. It is the kind of thing where you use the best
judgment you have to decide what you think is going to happen,
and the judgment of a great many people is that the kind of
pattern we see ahead will take place.
Q
Mr. Seidman, what is your reaction to the
action of the Ways and Means Committee today and where does
this leave the President's tariff?
MR. SEIDMAN: Well, it leaves the battle still to
be fought. That is just the first skirmish so to speak and
we shall see as it proceeds through the legislative process
where it ends up.
Q
Up until now the solution adopted by the
Administration largely relied on the confidence level here.
The WIN campaign for one. Does the tax rebate oil tariff
trade-off indicate any change in Administration strategy? In
other words, is the Administration now saying, we have no
confidence in the ability of the Administration to get
confidence back from Congress and the public, therefore, we
are going to try a more mechanical approach to this and
force the issue, in effect?
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MR. SEIDMAN: No, I wouldn't say that. This whole
confidence thing is a very hard thing to define. It is
the way people are acting at the moment. I think the
Administration is doing what it thinks will provide the
popular -- the right incentive for people to move back
into the marketplace. Plus, I think one of the only ways
that you can hold down spending is simply to not have the
revenues and perhaps as an additional gain out of this,
there will be a change in that trend line.
Q
When you paused there, were you removing
the word "popular"?
MR. SEIDMAN: No, it was just my tongue got tied
up.
Q
It bothers some of us that we don't hear
more mention and action about long term energy, solar energy;
it is a phrase that is dropped in from time to time, tidal
energy and so forth.
Could you brief us a bit on plans?
MR. SEIDMAN: There is a very major plan in that
area. It will be under the new agency, the energy research
agency, ERDA. That agency was just created. They are in
an overall survey of that. Certain areas have been identified.
They just, the first really large coal gassification program
contract was just announced.
The President's program envisions our country
becoming an energy exporter by the end of this century, and
that is based on the things in that area. The more
definitive parts of that will await that agency's sort of
on-going research, but there is a major program. It has
major funding, and I think, while I am not expert on parts,
certainly the nuclear and coal gassification, solar, all
of those areas will be explored and will be the main source
of our becoming energy independent after 1985.
Q
What is the psychology that the Administration
wants from the people today? In many of the smaller
communities the Chamber of Commerce likes to say everything
is fine except when they are talking to their members.
What is the Administration looking for now? There
seems to be a change there also. They seem to be saying that
there is bad ----
MR. SEIDMAN: Well, I think it is much as the
President said in his speech the other night, that we need
to sit back and take things in reasonable order, don't try
to get an instant correction to this. There isn't one. Let's
try to analyze the problems and move ahead on them at a
reasonable pace, that concentration on your own ills only
makes you feel worse, and that in general we are going to
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come out of this if everybody will buckle down and be willing
during this time when we have a shrinking pie to take a
little smaller piece themselves and not fall on each other
trying to stay the same when the pie is going down.
Q
Do you want people to put money in the
savings banks to help the building industry or do you want
them to buy automobiles to help the automobile industry?
MR. SEIDMAN: I think those are individual decisions
that people have to make on their own. I think we don't
want people to say, I am not going to buy anything ever
because I think the world is coming to an end. That kind
of spirit, I think, doesn't help.
Q
Under the heading of major funding, I wonder
if you could expand just a bit on the scope of the ERDA
program. Not its objectives, but personnel, how much major
funding, and immediate scope.
MR. SEIDMAN: They are currently funded on a program
which will involve about $10 billion of which $2 billion
will be the current year's budget, the next year's budget.
They have, I think, been funded to the extent that anybody
reasonably can find a way to spend the money and in a way
that it looks productive. You can throw money at these
kinds of things but they take time and it has not been held
back for funding except to the extent that it didn't seem
reasonable to spend more than that amount.
Q
The scope of personnel?
MR. SEIDMAN: The same, I think you would see the
same. But the new director has not really given us his new
report, and one thing I would say, just before I go, is that
organization to get decisions, we believe, is terribly important.
Everybody in the energy field, for instance, was
calling for an instant solution when the President got in.
Instead of that he reorganized the Government, brought in
all the people, worked on a package, and came up with the
alternatives and what he thought was best. That kind of
a procedure, we think, is better than a new multi-billion
dollar because it sounds good in a speech.
Thank you very much.
(Applause.)
MR. WARREN: Thank you, Bill.
Before we take a short break, I would like to make
a recommendation to your President and also a personal
observation.
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It seems to me that most of the people here are
here because they haven't heard from Bill Simon and Bill
Seidman very often and they came, many of them great distances
to hear this. There are two or three people here, however,
who have a chance to hear these gentlemen quite often and
I thought perhaps you might want to make them honorary members
of your organization. I refer to Irving R. Levine and
Bernie Shaw of CBS and Cliff Evans --I am sure I have left
out a few others--but some of the best reporters in town
who know the subject very well.
A personal observation and an answer that I know
Bill Seidman would have given to this question about what
to buy. When Congress votes the tax rebate, which they
most assuredly will do, I think Simon and Seidman and every-
body else hopes they will do both. They hope that people
will put money into automobiles and refrigerators so that
productivity is increased and our corporations are healthy
and jobs go up. But also it may put some money in the
thrift institutions and that should help the housing too.
Now we are going to take a short break. Behind
you there are a great number of gentlemen, many of whom I
have come to know very well in my six years and three days
I have been working on various White House staffs, and they
have become friends of mine, and certain periods during that
last six years I thought perhaps they were my only friends
in town, but they were very faithful.
The last time I saw a battery of cameras like this
in any one room we were not talking about how to solve very
serious problems facing this Nation. Essentially, what we
were discussing in question and answer was will this Nation
be able to address serious problems in the future or will
we survive. It was serious then; it is serious now. I think
it is much more healthy now because there is a consensus in
this Nation that, one, there needs to be a national energy
policy; there has to be national energy goals, and it is
important to become independent in energy.
What we are talking about and what is referred
to as confrontation is how to get there and I think that is
very healthy.
So we will have about a 15-minute break and be
back at 3:30.
Thank you.
- 37 -
MR. WARREN: I think we should begin, ladies and
gentlemen.
There were many questions in the earlier part of
the afternoon that I am sure you will want to direct to
Frank Zarb. We have heard some questions on a change of
direction in the Administration thinking, and going one way
and now we are going another way.
You have had, I believe, from Bill Simon and
Bill Seidman discussion of the situation as it exists and
a discussion of the program. Now, the man who can tell you
the details of the energy program in as precise a fashion
as you wish is, of course, Frank Zarb, but he also can tell
you why we are doing it, why we need a national energy
policy, and why we have to set goals.
Before he tells you what that policy is and what
the individual steps are, just briefly, President Ford
nominated Frank Zarb early in December as Administrator of
the Federal Energy Administration. He was confirmed
rapidly. He continues to serve as Executive Director of
the Energy Resources Council and is truly the newest in
a line of three successive energy chiefs.
In all deference to Bill Simon, we will not call
him the energy czar, but there are some of us who call him
the "Energy Zarb".
Frank.
MR. ZARB: Well, I won't give the prepared
60-minute presentation I had. I think you have probably --
who said "good"?
I think you have probably heard enough of the
material and the overview of the plan and the details of
the plan. I would just add maybe three minutes of substance
and then let's go right to your questioning.
I understand that this morning you had some
questions on the need for doing what we are doing. I think
those are legitimate questions to raise and should be
discussed more often publicly and shouldn't just be put down
with a nonchalant answer.
There is little question that we lost our
independence in 1964, '65, in around that period, in terms
of energy. Up until that point we had a capability to do
some exporting. We did some importing during the same
period, but we for the most part had a capability of sur-
viving any kind of an embargo action. That gave us some
way of control over price and we weren't in a position where
we would have to accept the price set for a good chunk of
our energy by other groups similar to the cartel.
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Well, by 1970 we had paid $3 billion for our oil,
our imported oil. In 1974, paid close to $25 billion; 1977
if we do nothing it will be close to $32 billion.
The financial questions get to be quite considerable
and that makes our friends over at Treasury and in the
economic circuit nervous when they look at those calculations
and how they are mounting.
Beyond that, there is a big question of our 40
percent current vulnerability which some say isn't 40 percent
because only part of that comes from the Mideast, about
2 million of the total 6.5. But the question, I think, then,
is now fast is the Mideast import increasing as compared to
the rest of our sources, and it is a fairly escalated rate,
and I think that we would be probably dependent in 1977-78
by close to another 2 million barrels a day from the Mideast.
So our exposure to embargo could increase substantially.
But keep also in mind that when we don't have
capability to bargain for our energy because we are so
dependent upon a group that might collect among one another
simply to affect price, that we are forced to pay a relatively
higher price.
Beyond that we are not only concerned with the
source of energy; we are also concerned with the delivery
of it. And another nation that has nothing to do with oil might
have some effect on our ability to get delivery simply by
having control over the sea lanes.
Having said that, I would also say that I have
heard good arguments by others that have said, well, why
don't we just take the chance or at least go ahead and
develop our substitute energy sources and not worry about
conservation, and their argument runs to the risk factor in
a calculated -- that the risk is worth accepting and that if
we are to have another embargo over the next three or four
years that the likelihood of that occurring in their minds
is relatively small or if it did occur we would be able to
overcome it similar to the embargo experience a year ago.
I personally can't accept that notion but I
respect the fact that people make it and I think it should
be reviewed publicly. It is a question of that security; it
is a question of whether or not we need to send for advice
and consent on our international decision-making to other
nations who might have a substantial control over our
economic well-being.
Now, a minute on the President's program.
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The total program is a set of measures that do
two things: They raise the value of energy in our society
to a different plateau, and thereby stimulate decisions
within that society and the economy which over a period of
time will have more efficient equipment in the plant, more
efficient insulation at home, and different kinds of
equipment on the road. It also gets to the conservation
question in more mandatory areas such as housing, and
quasi mandatory with respect to automobiles, measures which
we felt we had to take because we were not getting
voluntary work done as quickly as we thought it was necessary.
The other measures go to replace with domestically
controlled oil, imported oil, and we have that capability
of domestically controlled energy. The Outer Continental
Shelf, we believe, has a considerable potential and believe
conservatively that a million and a half barrels a day by
the early 1980's is a good bet.
We believe that the Naval Petroleum Reserves in
Alaska which are now undeveloped do little good way down
under the ground there, in the case of a national emergency
won't be all that useful, so we propose that we develop that
field and develop the delivery system, get the oil to the
lower 48, and provide a different kind of security reserve
for the military with respect to oil to offset that. That
has a considerable value in barrels of oil.
We believe that nuclear energy has an important
part to play and we believe that coal has a very important
part to play both in its present form and its synthetic
form, liquid or gas. I think that covers the majority of
the short-term measures.
The exotics in terms of solar and geothermal will
come along, but that is really something that will not have
an impact until well into the '80's.
Now when you look at the package in total, there
are a couple of things I think it is important that I
mention to you. Each measure has a value. The value is in
barrels of oil. Now we can quarrel with the real value,
and I think that is a good debate, and make sure that the
analysts defend the fact that what they say the value is
is accurate.
After that, if we subtract a measure from the
total package and we agree that we should be capable of
self-sufficiency by 1985, then we ought to replace that
subtracted portion with another measure of equal oil value.
Otherwise, you need to debate the bigger question which
says that we are not going to get to where we think we
ought to be by that period of time. I think that is awfully
important to keep in mind as we march down the road of
discussions both publicly and with the Congress, because
there will be measures within the total package that are
distasteful to one segment or one interest or another interest.
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Everybody examines this program in the way that
asks the question, how does it affect my world, and they will
find one or two parts that might not affect it too neatly and
would like to see those dropped out.
Now, the current debate -- incidentally, it seems
to me that there is general acceptance over the last 10 days
or so that we have a problem. And it kind of warms the
cockles of my heart that we are here today talking about
energy, and I have been talking to groups both here and on
the Hill about this issue because it wasn't too many months
ago that people were not really focusing on the issue
regardless of where they came down on the issue.
Secondly, it seems to me that by and large we have
a general acceptance of the President's goals. There is
a sub-set of arguments on the near term conservation, but
those who are speaking publicly in Congress and the New England
Governors yesterday, acknowledged that these goals are
realistic and should be pursued. For the most part the
measures in the energy substitution area as well as the
mandatory conservation steps apart from the tax package
seem to have gained a fair degree of acceptance.
In any case we have not had a high level of debate
on those issues yet. We may find as we move through the
Congress we will have a higher level of friction but at the
moment there seems to be a general agreement that the package
is fairly complete and except for the front-end conservation
approach, most people buy off.
Now, we then get down to whether or not we conserve
near term -- and I have talked to that point, and you may
want to disagree with it and we will talk about it -- and if
we say we do need to conserve or turn that curve of growing
dependence around, whether or not we should do so by
increasing the value of oil product throughout our economy
and have the decision-making process effect the conservation,
and also insure that it gets done.
Remember, the President put all his chips on the
table. He said if we don't achieve the one million barrels
exclusively through this method I am going to use my volu-
metric control powers to make sure that we get all the way.
So in his program one way or the other we get there. Or we
go the Government approach and on the Hill this morning
before Ways and Means we talked briefly about that.
I didn't get an awful amount of encouragement in
terms of rationing. The chairman said that he didn't believe
that that was exclusively the right way to go, but he
suggested there might be a happier combination between the
economic and Government control approach.
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We weighed rationing very heavily and other forms
of Government-managed approach. We didn't start off with
a philosophical bent that says this isn't in the true
Republican spirit, so we shouldn't even consider it. We
looked at it from the standpoint of both capability,
effectiveness, and equity and came to the conclusion that
although it is very difficult, with many inner problems to
be resolved, that one approach that had the best chance of
succeeding and that with the least amount of those problems
was the approach that was put forward by the President.
Now, rather than go into the horrors of rationing
as compared to the benefits of economics, I think perhaps we
could cover that in what is most important to you. So,
why don't we just answer your questions.
Q
Mr. Zarb, the last two speakers have sort of
written off the Ways and Means action today as just the
first salvo in a battle over the tax on the barrel. Do you
think that is a fair assessment, or do you think there might
be a danger that what you saw there this morning reflects
perhaps a Congress-wide sentiment that is going to bode ill
for the program?
MR. ZARB: If I am not mistaken, the vote on that
issue was 14 to 15. You may have more current information than
I do, but the last information I had was that the vote was
14 to 15, tacking that bill on to the debt ceiling bill which
hardly in my mind reflects the sentiment of the institution.
I really mean this seriously although it will sound like the
Administration's optimistic views.
It seems to me that the more we sit down with
reasoned people and talk about the problem, and then talk
about the alternative solutions and have an opportunity to
share with them and they with us views and facts that we
more and more get people to reflect on the fact, well, this
approach does have real difficulties, but by God, maybe it
is the best of all alternatives, and that has been my
experience and I am hopeful that as time wears on here and
we are in a position to have these discussions that we will
get more people to think in those terms.
Q
I have a question that relates to the tax
proposal of oil companies. First, how do you intend to get
back from the oil company the massive amounts of new profits
they will get when you deregulate domestic crude oil; and
secondly, does the Administration support end of the foreign
tax credit for oil companies?
MR. ZARB: I am not going to answer your second
question and I will tell you why, because it gets involved
in the total process of the windfall tax approach with
Ways and Means.
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The proposal which we made tried to base most of
its substance on last year's work by Ways and Means. They
worked on a windfall profits package that we sent up, well,
for a full season just about, and created quite a record
in terms of testimony. So we tried, and our thinking at that
point was if we don't put in too many new bells and
whistles maybe we can get this thing through more quickly
rather than opening brand-new debates with enormous tax
reform.
Our principles were two: The first is that
excessive profits which may be defined as excessive by
reasonable people, should not continue to exist within any
part of the energy industry while we are working on this
program because many of the things the Government does or
does not do will affect the ability for them to have those
profits.
Second, we ought to over a long period of time
insure that the return on capital within those industries
is at a sufficient level to insure that they can do the
things necessary to achieve independence. It costs a lot
of money these days to drill a hole in Alaska, and one out of
every 10 being a good one, it costs a lot more money.
To develop the Outer Continental Shelf will be
expensive and we think the schedule finally arrived at by
Congress should reflect that. The Congress in the last
session, as you know, did not vote out a bill and as a result
the oil companies enjoyed a reasonably decent profit.
Our proposal was to go forward with the same
kind of measure, making it effective the first of January,
take back the first year everything that would accrue to them
as a result of this program during the first year, plus
$3 billion more. That $3 billion more would have been the
net effect of the same package had it been approved by
Congress last year.
Now, Congress has added plow-back in last year's
work which in essence says if they can demonstrate they plow
it back, then they can be excused from this windfall provision.
By the same token, they started to work on depletion and
foreign tax credits. They are going to do the same thing
now.
From our view, so long as we get a prompt bill, so
long as it is effective as of January 1, so long as it takes
into consideration the new base at which we are starting and
dig some into that base, so long as it gives stability to
the industry so that the industry knows what they are in for
in terms of return over the next 8 to 10-year period and
so long as it provides a reasonable return on invested
capital, if those principles are followed, the Administration
will support the bill.
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Now, I haven't gotten into the intricacies of
the tax language because I don't know it.
Q
But just so I am clear on this, when domestic
petroleum rises from $4 or $5 a barrel to $12 or $13 a barrel,
all of that new money that the oil companies are going to
get is going to come back to the Federal Treasury?
MR. ZARB: Yes, but I don't want to mislead you.
The net effect is to take it all back and also an additional
$3 billion -- from producers. Keep that in mind because it
affects producers, not the industry in total.
However, the way it works out is that they allow
the old oil to go up a smidgeon and take back the new oil
and start to move those lines into parallel. The effect is
the same but not precisely the way you just described it.
So that maybe in conclusion the Congress will say, in 1980
oil should probably be about $8 a barrel based upon all
the testimony we had, so there will be an escalation and
de-escalation of new oil so that all oil will be controlled
at -- or all the windfall profits will be collected in excess
of $8 a barrel, but the incentive will be there so that
they can go out and get the higher-cost stuff.
Q
Mr. Zarb, we have been talking about rationing
a bit this afternoon and even though Secretary Simon said
only 18 percent, I think, of gasoline after the winter months,
I think the emotional focus is going to be on gasoline.
If you put higher prices at the pump, it seems
that the upper levels of our economy may grumble, but they
will be able to pay it without much difficulty. It seems
that you are really penalizing the guy on the fixed income
or lower economic strata of our society who can't afford that.
Now, as unpalatable as rationing may seem to our
economic system, or our free system, isn't it far more
equitable than an unfair higher price at the gas pump?
MR. ZARB: Well, let's talk about the effects of
both programs. I was I guess about 10 years old by the time
rationing went off during the last war so I can't speak from
experience as some of my colleagues can, but let's look at
the way both programs would work.
There is no question but what going the economic
approach makes you immediately ask the question, what about
people who can't afford it. The only way we could offset
that was through the system of giving the money back to the
economy. When we examine that approach we say we had to
succeed in two principles: We had to, (a), change the center
of gravity of spending so that for the most part, except
in cases of severe needs, those dollars didn't go back into
the acquisition at the pump.
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The second thing we had to do is try to offset the
problems you just described with respect to those who are
less advantaged in our society. The proposal put forward
restructures the tax tables and it is a more permanent re-
structuring that probably we wouldn't do if we didn't have
the availability of additional revenues, and it straightens
out the distortions that occurred in the low end of the
tables as a result of inflation.
The net effect of all that is that the people in
the middle to lower and lower income levels get more back
than is calculated their energy costs will go up. So there
will be a net income to them, while people at the higher
end of the scale, their energy expenses will go up and they
will get less back.
Now I must admit to you that the Treasury Department
in calculating that really went after the objective of
restructuring the tax tables to take care of those distortions
and rather than devising a means of getting the money specifi-
cally back to the economy.
Now let's talk about rationing because that has
become a program that has become a hobby with me in recent
days. How do you hand out ration coupon books? You start
with the conclusion that -- The New York Times not with-
standing this morning -- rationing energy across the board
is very, very difficult. People have coupons for fuel oil
and coupons for electricity and coupons for Diesel oil and
for industrial oils, it gets very, very difficult and would
take us some time to really implement if we had to go that
way.
So you zero in on rationing of gasoline. That visits
all the conservation on one product and Bill Simon's
observations I am sure were that if we save it all on one
product, we are not going to have the effect that I described
earlier of 10 years of decision-making in the economy which
is going to lead us to use energy with a new sense of value
across the board. But nevertheless, you do get some
savings through a rationing program. But how do you dis-
tribute coupon books?
There are two ways. There may be others that we
haven't thought of, but two ways after all the ones that were
put forward that survived: by number of automobiles in the
family or by licensed drivers. Even before we begin we
start with those inequities. If I have six licensed drivers
in my family and earn a good living, my next door neighbor
has just he and his wife and he drives to work, and earns
much less than I do, then if he wants to do anything extra,
and in some cases just to get back and forth to work if he
drives a long distance he will have to buy coupons on a
legitimate market. If we don't have a legitimate market,
we will have a significant illegitimate market. So he would
have to buy my tickets or coupons.
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The staff says they will be, for the market to
work right, somewhere between 80 cents and $1.25 per ticket,
plus 50 cents for gasoline, so his extra gasoline will
cost him $1.50, $1.75 per gallon. How do you get by that
problem? Well, say the analysts, you don't give it out
to licensed drivers; you give it out to motor vehicles.
Well, who has more motor vehicles per family? The
rich or poor? And what happens to all those who can go out
and acquire a few extras at $50 or $60, as I used to do when
I was a kid and park them in the back yard and hang a plate
on them, and thereby are able to get more books and either
use them themselves or sell them in the marketplace.
Now, that is the first level of inequities that
you could start to concentrate on to even out. It would be
administratively very difficult to sort out between these
two types of families in either case. But let's look beyond
that.
If I wanted to move my family from California to
Washington I would have to use two and a half months' worth
of coupons. Or I would have to go to my local board and
inquire as to an exception.
Now the way our model reflects the problem, there
will be a lot of requests for exceptions and even in World
War II there were hundreds of thousands stacked up so the
likelihood of getting it isn't all that nifty and I would
have to go out and buy the extra gasoline at those extra
prices to get the job done, which would say that some people
could move and some people couldn't move.
The further you get into these kinds of questions
and you get it into plants and plant expansion, including
improving your marketing force and getting permission
from the Government and then asking the real honest question,
who is going to get these exceptions from the appeals boards?
Are they going to be the people with the least economic
voice in society or are the exceptions that will be granted
ultimately given to those with maximum economic voice.
The more you head into it the more you see the
same inequities building, but you are not finished, because
then you say to yourself, well, maybe all this is worth it
if you can keep prices down. But the fellow who is in the
energy business says, but you just asked us to go out and
do these contemporary things to get the Nation independent.
As time goes on that is going to cost money.
He also adds that when you cut back his refinery
capacity by some amount because you are shutting down the
light end of the refinery, when you do that you have got to
write off that excess capacity somewhere to keep your books
balanced, and when you run at a lower rate of capacity you
have got to pass those costs through your other products.
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So the net conclusion then -- and I sat on the
panel with some consumer people the other day who acknowledged
that prices would have to go up. Now you could wind up
with a situation where you had rationing, you had higher
prices, and you had an awful lot of unhappy people. Because
the American people will stand on line for gasoline, but
as soon as they see somebody getting a better shake or
jumping in line and getting a sneak gallon of gasoline they
get out of the car and they punch somebody in the nose, and
that is what they did last time.
So having gone through all this and looking at
the disadvantages in this other program, we concluded, and
after talking to the economic people of the economic impacts,
that this was the best possible format for the Nation.
I am sorry I took so long.
- 47 -
Q
Would you not concede it is possible you are
not going to get it? Let's say Congress successfully chal-
ilenges the President's authority to increase the tariff and
either by legislation prohibits it, or wins any kind of
legal test. What is your fallback position?
MR. ZARB: All right. I think then we are at a
position where we have to say to the Congress, we had a
comprehensive plan, it was the best that we think this Nation
could put together, all things considered. Now you have
stopped us. Now what is your idea?
I don't think that we are going to get a majority
of legislators to stand up and vote for rationing after we
have had an opportunity to review this, so what will happen?
I think no matter what, we are going to come back to some
general economic mix and they will have some observations
with respect to phasing periods or disparity by geographic
area which we will have to respond to.
The worst thing that would happen is that we wind
up nine months from now and we don't go back to the Ameri-
can people and say, we understand the problem and your
government hasn't answered that it is agreed to, which is a
real danger, and that troubles me greatly.
Q
But if the scenario is that Congress withdraws
the authority of the President on the oil tariff, possibly
passes a rationing program, vetoed by the President, he
probably won't have enough votes to override, then the ini-
tiative is on Congress as you just said, would they come up
with their own allocation program that would be acceptable
to the White House?
MR. ZARB: I guess it would depend really on what
they came back with. I tell you the way I would like to
see it work. It is too bad, but it doesn't work in the
same way here that it used to work in the real world when
I worked in the real world. We used to all sit around a
table and everybody would bring his facts and we would have
the doggonest arguments that you ever saw and before long
people who had funny notions were asked to prove them and
one at a time they would fall out because the data wasn't
there or their ability to defend it wasn't there, and by
God, you walked out of the room and you had a program that
maybe not everybody believed in for philosophical or other
reasons, but you had a program that analytically stood up
and then you all went out and supported it.
So what I would like to see happen is for the
right committees in Congress, who have the authorities
here, to say, O.K., this first dollar went into effect,
the impact on our economy won't be felt, the first dollar
won't creep into the system until sometime in late March
and only a small part of that. We have got a couple of
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months. Let's get on with this kind of dialogue in open air,
in public, and everybody bring their data and everybody can
march in a specialist, and together if we do that we are
going to all see the value of truth and somehow from that
process will come a compromise that will develop into a
national energy program.
I hope we don't go down the road you just des-
cribed. If we do, I just don't know what our next step
might be. I would guess it would be to go back to the Con-
gress and say, O.K., we have been through this circumstance
once. Now let's sit down and work out something that we all
believe in.
Do you want to follow that up.
Q Yes. Would allocation have a better chance
though in Congress of passing than rationing?
MR. ZARB: Well, I think allocation has a fairly
good ring from many people's standpoint because it sounds
like a compromise. You can say to yourself, well, the Admin-
istration likes this, and some people like rationing, so
let's go allocation, which sounds like a mid-stream approach.
As a practical matter allocation is a form of
rationing and what we do is create a shortage. Then we
make the decision here in Government as to who gets what
percentage of the shortage similarly to the way we did it
in the embargo. Now over a period of a couple years we
might get fairly good at that. But you have got to know
an awful lot about the intricacies of a system and industry
and all industries and their benefits on our imports and
our exports and our balance of payments and their future
development in terms of research to be able to make those
kinds of decisions wisely.
You have got to be able to make the decisions
within an existing supply mechanism, and when we had an
embargo we did the best we could as a nation, as any nation
could, without great difficulties and great economic dis-
ruption. The one allocation system which is a terrible
notion is an immediate cutoff of a million barrels of oil,
for example, and then allocate that shortage.
From an economic standpoint the Council of Eco-
nomic Advisers were about ready to jump out the window with
that kind of a conclusion.
Irving.
Q I think you would agree that the final solu-
tion to this lies not in cutting down the amount of foreign
oil we use, but in increasing our own oil, coal and other
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forms of energy. Can you tell us what some of the roadblocks
to that are at the moment to which the Administration may be
addressing itself in whatever time it has fighting the
aspect that you have been devoting your time to?
MR. ZARB: The nature of the problems? They are
environmental, they are economic and political. If you look
at each individual action -- and they are substantive; I
didn't mean to leave that out -- the development of Naval
Petroleum Reserves as the first hurdle with respect to the
political process in getting the Armed Services Committee
allowing us to go up and develop that field and get the oil
down to the Lower 48.
Now we think we have a reasonable offset for the
first time by demonstrating that we will create a national
reserve as proposed by the President, and a portion of that
national reserve which would be in salt domes or other
facilities would be set aside similarly to the Naval Petroleum
Reserves. But we have to get by that point.
Then we have to devise a means to insure that under
correct supervision the private sector gets up there and is
allowed to do the development and the production under some
measure to be agreed upon. But that is more process than it
is the major obstacle.
Then we have the physical limitations of running
the delivery system down, or the pipeline, so we can deliver
it. That just becomes a time question because we can allo-
cate in the materials and get it done. When you go to coal
conversion or Outer Continental Shelf, you get into the
environmental issues and there you have to look how much you
can do near-term without endangering health standards, and we
have agreed there is a standard we cannot go below.
Russ Train and I have agreed upon a series of
amendments to the environmental laws which would have us pro-
vide the near term as best we can, conversion, and long-term
increased conversion. We have other constraints there, but
they are hardware constraints. We need transportation
facilities for coal, we need better mining techniques, but
those we can deal with more quickly.
Nuclear power is another issue. We have areas of
the country who have turned away nuclear power for economic
reasons, where the utilities simply couldn't afford it. In
the last six months 50 or 60 percent of all nuclear construc-
tion in planning has been postponed or canceled. Financial
reasons, environmental limitations, local objection, a series
of things that delay it in addition to the laws which now
prevail which have us bring a nuclear plant on line in some-
where between eight and ten years. None of those steps are
easy, but those steps are manageable.
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We can confront the issue head on. We can say,
this step has a 2 million barrel a day value. Here is what
we can do to protect the environment, can ensure safety,
what are your objections and one by one we can overcome them.
From a sheer management standpoint those are a lot more
manageable than the heat that is generated by the issue of
taxes or rationing.
Q
How much unemployment do you expect from
cutting back a million barrels a day?
MR. ZARB: I will give you my noneconomic approach,
my personal view. If the Congress goes along with our approach
and we do put the taxes on, and do put the money back into
society, my view of the unemployment number is that it is not
anywhere in a significant level where I could calculate the
number. The price you pay, that we pay with this program, it
seems to me, is more clearly the inflationary impact of 2 to
2.5 percent.
If you go the other way, then you don't pay that
price, at least at the outset, although the economists say
that prices are going to rise anyway. At the outset you
don't, but you have the dislocation problem, the industry
that does not get sufficient quantities and as a result has
to phase back or shut down.
As as a noneconomist this kind of approach has
enough gradualism to it, and so long as we take care of
those peculiar situations where you have got an industry
that is going to go bankrupt because of the way they are
configured in energy and the way this tax affects them, so
long as we have provision to take care of those special
wrinkles in the rug, I don't think it is calculable.
Now we may get some arguments from some of the
economists, but
--
Q
A while ago Mr. Simon said that, in his words,
as I remember them, we tell Congress and the people what the
problems are, and I presume that is what you folks are doing
today for us. Seidman described the failure of economists to
predict what was happening now, and he talked about the con-
ferences that people in Government are having these days,
discussing among other things that he mentioned a project to
turn around progressive taxes, and you have been talking
about sitting down with reasonable or reasoning people to
discuss these issues, and I presume from what we have heard
that the reasonable or reasoning people are bankers or econo-
mists or academics or lawyers.
Is there any bringing in of the poor or unorganized
labor, or young people or old people into the discussions of
what should be done rather than tell these people what you
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are going to do?
MR. ZARB: You forgot Congressmen in your reason-
able people model. I think we ought to slip them in just
for the record.
Yes, there is this kind of dialogue, not enough.
I can give you one live example. The President submitted
legislation in the State of the Union package which will take
care of the poor family that can't afford to do enough insu-
lation to take advantage of the tax credit.
Now the way that we are going to approach that is
to follow a demonstration program which we helped to fund
and name whereby the Federal Government bought the insulation
material and voluntary organizations installed it and they
affected some 1500 homes at a reasonable cost and if the
report is accurate did a whale of a job.
Now it just so happens that I have a special impact
advisory committee which has on it :consumer advocates, minori-
ties, those who represent the mature element of our society,
and early on, while I was in the process of trying to pull
together this year's worth of data and help to construct
options, I raised with them in general terms the way things
were shaping up and they raised with me this main program
that I had never heard of and I went back to my desk and
asked for whatever we had on it. Areport was delivered to me
that night. I read it that night and we did some confirmation
work on it and had some numbers checked out, and in our
final recommendations to the President, lo and behold, was a
program that is worth $55 million a year that will spread that
program throughout the Nation.
So while any government always will be criticized,
properly so, for not reaching out enough, early enough, with
enough scope and depth to all elements of society, we sure
are trying, and here is a live example of how it helped
formulate public policy. That idea came straight from that
group.
Q
In return for delaying auto pollution regula-
tions, have the auto makers given you a model year to achieve
the 40 percent improved efficiency rate on mileage?
MR. ZARB: The arrangement is 1980 model cars, 40
percent improvement on average miles per gallon. We will
monitor that regularly. DOT will provide public reports on
a regular basis to insure that it is achieved.
Q
Why did the New England Governors leave yes-
terday, at least some of them, feeling that that area of the
country was being held in hostage for the total program?
They are reasonable men and one woman.
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MR. ZARB: I was going to ask you that question.
New England is in a particular position in energy that has
been felt particularly in the last year. The Northeastern
part of the United States is dependent upon oil for its
energy. I think about 85 percent of its energy comes from
oil. The rest of the Nation is 50 percent.
When the embargo hit and the prices went up via
cartel action, they were hit very badly. So the fact that
they are particularly sensitive to any change at this moment
shouldn't be a surprise to anybody.
Now there are a number of things we can do short-
term to help mitigate that problem, and when the President's
program is fully looked at and fully implemented, New England
is not any more burdened than any other part of the country.
On the contrary, there are one or two other areas of the
country which take a little bit more of a burden because of
their driving habits. New England folks don't drive quite
as much as folks in Wyoming or Montana and with gasoline
prices going up slightly more than heating oil, those areas
are going to be more seriously affected than New England.
Now New England says, don't tell me that. I have
got a problem now. I have got a problem even before this
program. Look what has happened to our rates in the last
year. The answer to that is a more permanent solution.
They are now dependent upon foreign sources for about 85
percent of the oil they use to fire their utilities. Now
that is a heck of a predicament to be in, to be dependent on
foreign governments to 85 percent of the oil used to make
electricity in a given part of the country. Pretty serious.
So we ought to be thinking about what needs to be
done to change that around. That gets us back to Outer Pon-
tinental Shelf along the Atlantic, refineries in the North-
east, nuclear power in the Northeast, and in the interim every-
thing we can possibly do to help cushion the burden.
We have dropped the tariff that will affect that
residual product to $1.20 rather than $3. It will not go into
effect at all the first month. In the last month we put
together an entitlements program which has the rest of
America share their old oil value with those parts, the
small independent refineries who have no control over old
oil, and the Northeast.
Now I should also add that we have a letter from
20 Senators from the other side of the country that are par-
ticularly unhappy with that step and have threatened to legis-
late our powers away to take care of the Northeast problem.
MR. WARREN: Let me interrupt just a moment, if I
may. I will point out this. Frank will be here after the
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President arrives and speaks, and I would like to interrupt
Frank's presentation right now to introduce Jim Lynn, who
is, as you know, Secretary of HUD and will discuss briefly
with you the impact on housing and, as has happened in recent
briefings, Jim will probably be interrupted by the President,
but when he becomes Director of OMB he can look forward to
a lot of that.
MR. LYNN: I am here with the HUD hat on. I might,
since if the Senate is willing, I am to go over to the OMB,
say one or two things that are directed to that.
This was captioned, I believe, where we are in
housing now and where is it going? Let me break that into
two pieces: What I would call generally the housing market
apart from assistance to lower income people, and then where
we are on lower income people.
To give you a very brief synopsis, as you know, we
had three of the higheset starts levels, three annual levels,
that we have ever had in this country in 1971, '72 and '73.
In the fall of '73 it started coming down for a number of
reasons: One, was the oil embargo caused problems, disloca-
tion and the like, uncertainty among the consumers. Also
we had had a lot of building before that.
Along about in early spring it started looking up
again. Money started coming back into the Savings and Loans
and for about a month or two months everything looked like we
were going to head back up again. Then the inflation hit very,
very hard in along about March-April, and as a result of that
inflation plus the efforts made to combat it by way of mone-
tary control, the money started flowing out of the Savings and
Loans. again. In other words, with higher interest rates
depositors could find other uses, higher yields for their
money, the money went out of the Savings and Loans and by
April we found ourselves with builders without money for the
take-out mortgages for the consumers buying the housing, con-
struction loan rates up around 15, 16, 17 percent, squeezing
builders tremendously and the downtrend has continued just
about ever since to which point the first quarter I think we
are at a level of 1.7, 1.8 million in starts a year to where
our announcement for the month of December was a starts rate
of 836,000, if I remember the figure. That is a very precipi-
tous drop.
We have tried to fight this along the way the best
we can within the Federal Government. One way or another, we
have provided through Federal mechanisms $26 billion of mort-
gage credit commitments to help housing during this period
of time.
Now when you understand that, the normal additional
mortgages a year in this country is $70 billion -- $26 billion
although far and away larger than anything we have ever done
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through all these financial institutions -- GNMA, FNMA, FRDMC,
the Federal Home Loan Bank system -- you name them. All
these devices we have -- it isn't anything that gets housing
back up to where it was. All it does is cushion the effect
of the drop.
On single-family housing the drop has not been nearly
as severe as it has been on multi-family. On single-family
we have had a drop of somewhere around 15 or 16 percent in
our last figures that we had. On multi-family housing it is
down 75 percent from a year ago.
Now that is not all due to the impact of there not
being money. Some of it is over-building in various places
in the country. But when the President sought from the Con-
gress and received the Emergency Home Purchase Assistance Act
in October, although we asked for this same kind of assistance
to provide money as subsidized interest rate for housing for
multi-family as well as single, Congress didn't give us the
multi-family assistance.
If there were any place where we had needed it
throughout the period of the last three or four months, it
was in multi-family and the President continued thereafter to
request assistance in that regard. But as I indicated, there
is no way the Federal Government could come in and fully sub-
stitute for the private market even if we wanted to, because
every time we offer assistance we go to the same well that
the Savings and Loans go to. The Federal Government ends up
borrowing in the market. If we borrow too much money in the
market, we boost the interest rates higher, we take more money
out of the Savings and Loans as depositors seek higher yields,
and we end up chasing our tail.
The situation today for the first time in many months
is a lot less gloomy. In fact, it has some real signs of
hope in it because starting in November the money started
coming back into the Savings and Loans. Why? Well, there
are a couple of reasons, but the main one is that as market
interest rates have trended downward in the last two or three
months, Treasury yields are down so the competition is down,
the depository is putting his money or her money back into
the Savings and Loan.
Another reason is there is some propensity to save
in an uncertain period where there are consumer confidence
problems in the market. With the money coming back into the
Savings and Loan we can expect over a period of time -- late
spring, early summer -- to see a recovery from where we are
and it getting better the remainder of '75.
It is not going to be up to a starts rate, in my
humble judgment looking into a crystal ball -- and this is a
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business to look into the crystal ball -- by the end of the
year, but most forecasters are predicting that by the end
of the year the starts rate will be somewhere around 1.7
or 1.8 million a year, which is a healthy way on the way to
recovery. But for the next three to four months I think we
can still expect to see starts rates around the low levels
that we have now, maybe up a little, maybe down a little, but
with the lag effects that there are with builders, where
they have to get permits, submit plans and the rest, it
will be three or four months before there is recovery or a
starting of recovery in my judgment.
Going on to lower income housing, all of you are
familiar that the old programs for providing assistance for
lower income families were suspended except for bona fide
commitments and certain things in the pipeline back in Janu-
ary of '73. In August of last year the Congress passed the
Housing and Community Development Act of 1974. One of the
things this Act did is authorize a new approach for helping
lower income families. That approach essentially is that we
can go to a builder, a private developer, we can go to a
housing authority as far as new construction is concerned or
existing housing that is out there, and pay the difference
between the fair market rental of those units, new or exist-
ing, and what a lower income family can afford to pay with a
reasonable proportion of this family's income.
A "reasonable proportion" is defined as somewhere
between 15 and 25 percent, depending on how poor the family
is, how big the family is, and so on. That is 25 percent of
gross income.
We released the monies to the field, the first
monies for this, about a week ago, a little less than a week
ago, as a matter of fact, $900 million. Now that is a figure
that doesn't tell you the whole story. That $900 million
means one year's payments on the commitments that we enter
into, sometimes that helped build the project, and the com-
mitments go 20 years, so $900 million of contract authority
means a taxpayer obligation over 20 years of somewhere around
$14, $15, $16 billion. That amount of money will help finance
some 350,000 to 385,000 units of housing for lower income
families, either existing or new construction or rehabilitated
construction.
If you will recall, during the period '69 to '72
more subsidized housing assistance was given under the old
programs than have been given in the prior 50-some years of
subsidized housing before and even with that $90 billion or
$100 billion committed on these 20- or 30-year commitments,
we have only been helping one out of 15 families that qualify
for the program. This carries you over to the basic kind of
problem we have.
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When you attach the assistance to the housing rather
than the people particularly, you get horizontal inequities
as well as vertical ones. By that I mean you have people
waiting for what you do have to offer. This is one of the
reasons why during the course of the last year we made fully
operational a program of testing housing allowance, some
people will call them. We call them direct cash assistance
that involves over $2 million, 18,000 families, where we are
trying to see whether direct cash assistance given to the
families to seek their own housing is better or worse than
what we have now with a system that emphasizes the supply side
rather than the demand side.
Under the new Housing and Community Development Act
there is something new that you people particularly ought to
be aware of.
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As you know, we have community development block
grants now, instead of urban renewal money, model cities,
water and sewer grants, neighborhood preservation, neigh-
boorhood facilities, public facilities, historical preser-
vation grants, and on and on, categorical grants each for
each project.
In the larger cities it is a formula passed.
Pass-through of $2.5 billion has been provided
by the Congress pursuant to the President's budget to
consolidate these programs and the communities come in once
a year for funding. They get an automatic amount of money
provided that their plan is okay.
We are kind of like an appellate court on the plan.
We can't overrule it unless it is clearly unreasonable. But
the Act provides that in the development of that plan, by
that city, they must have public hearings in the development
of the plan. They must have citizen participation as the
development goes along so that the various segments of the
community, whether it is the establishment, whether its
minority groups, lower income groups, people that just have
good government at heart one way or another, all have an
opportunity to be heard.
Final judgment lies with the city fathers but
that caldron of activity, that interplay of forces, should
make the people in the city very much aware of what the
competing forces are for what always are limited funds.
It seems to me that here is a place where the
media can be of particular value and service to that
community to be sure that the community knows how much money
is to be given to that city that year and in the years
ahead with reasonable prediction, what plans are being
proposed, and some evaluation of what these various conflicting
proposals are.
One thing, incidentally, we are going to be looking
for, and I urge all of you to take a look for, is economic
development because one of the things I am convinced of
after two years in HUD is that there isn't any way of planning
housing; there isn't any way of seeing whether housing
is going to be good for five years, 10 years, or 20 years,
without knowing what are the prospects for that area and
that city for jobs in the future and what kind of jobs. I
would hope that under this program over a period of two to
three years we will develop sophistication in the communities
to do a realistic assessment of what their competitive
position is vis-a-vis other places in this country for jobs.
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There is a housing assistance plan required with
every plan we get which says the community must give us a
plan for how they are going to take care of their lower
income people, where they think the site facilities should
be located in this regard, how they are going to carry out
this plan. Again, there is something that would seem to
me to require media attention.
For the longer haul I would like to mention some
of the things I think we are going to be talking about
more in the next one, two, three, four years. One of the
things is coordination within the Federal Government. As
I have been here six years now it impresses me more and
more that there is hardly an important initiative that
comes out of any particular department or agency, a proposal
that doesn't impact on or couldn't use the views of other
departments and agencies.
What Claude Brinegar has done in DOT on highways
vitally affects what happens to me with respect to housing;
it vitally affects Commerce as to what happens to jobs, and
so on, and I can give you one example after another.
Land use may be the most beautiful example of
that at all. Land use is just a definitional term for all
the competing uses for which land can be put and that
includes housing, it includes industry, commercial useages,
open spaces, it gets you into the environment, into the
highways, airport locations. Find one aspect of Government
that land use doesn't affect. So whether or not -- energy,
excuse me.
Energy, too, most certainly. But you make my
point, Frank.
There isn't anyone approaching that except
on a coordinated basis. I think that the Domestic Council
has been of use in this but can be of far greater use in
the sense of Cabinet officers and agency heads getting
together on a coordinated basis, task by task, and in my
humble judgment, that is something that has got to be worked
very, very hard in the years ahead.
I have to say subsequently that I think work has
to be done in that regard elsewhere. Congress has taken
an important first step with the budget control act, with
the Budget Reform and Impoundment Act where they are to
get together at the beginning of the year and make
allocations, priority-setting with respect to various kinds
of spending programs for the year ahead and after the
activity is done with their legislative year, get back
together again, add it all up and make three decisions:
live with a deficit, increase taxes, or cut down on the
programs before they go to press.
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Now that is a first step, but I am not alone.
Senator Humphrey feels this way on the Democratic side as
do a number of people on both sides of of the aisle. There
have to be efforts made both in the Executive Branch and
in the Congress to try to bring about that kind of coordin-
ation as much as we can, It is not easy.
Other major issues that again will be in the fore-
front, and you know it and I know it, will again require the
coordinated efforts, welfare reform; certainly, health
initiatives. On welfare reform let me tell you from my
standpoint, if we were to go to direct cash assistance for
housing, would there be a separate discrete categorical
program, or should it be thrown into a bigger pot and
handled that way?
Do you put food stamps together with housing?
Do you put that together with Aid to Dependent Children? Or
do you try. to do it categorically area by area but have
better linkage between them so that you don't get the
notch effects that Martha Griffiths talks about where if
you have a welfare family that is on three or four programs,
you end up with every dollar more the family earns they lose
$1.35 or more in benefits.
So, what I am saying is the kind of issues we
have for the years coming ahead are ones that will require
coordination more than almost any other thing, an art that
has only started to be developed, both in the Executive
Branch and in the Congress but one we have got to develop
to a fine edge in the years ahead.
With that background, let's have some questions
until I am interrupted.
Q
Mr. Lynn, maybe we shouldn't talk to city
managers, but we occasionally do, and they tell us that the
block grant program was to determine ---
THE PRESIDENT: Jim, I am sorry I interrupted. I
should have stayed outside and listened for the answer.
Let me express my appreciation to Jim Lynn and
Frank Zarb and Mike Duval and others who have been here.
They know the subject matter extremely well. They were my
important advisers in the process of working out the economic
program and the energy program and they are going to be
working with me in explaining the justification and the
details of the several plans as we move down in the months
ahead to get some action in the Congress on both plans.
It is a privilege and a pleasure to be here to
meet with the news directors. I had the great pleasure,
I think, back in 1968 following the election of making a
speech to your convention in Los Angeles when my good friend
at that time, Bill Roberts, was either the in-coming or out-
going president of your organization. Bill has been with
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me on my staff when I was Vice-President and is now, of
course, with me on the staff under Ron Nessen as Bresident.
I am obviously delighted to have an opportunity
to say a few words on the programs that I have proposed
to the Congress. I think the success in the implementation
of those plans through the Congress depends to a very large
extent on the understanding and the cooperation of the
American public and in my judgment the more information the
public receives on what I have proposed in these two very
important areas, the better chance they have of being
implemented, not only in the Congress but through the
efforts of the American people. Because of the great
influence of the electronic media your role in giving the
facts to the American people is especially a vital one.
You may have heard or read the remarks that I
made over national television a week ago Monday night and
followed on the State of the Union on Wednesday of the same
week, so I assume that in many details you are fully
informed. Some of the broader background, of course, will
be explained or has been explained by the three that are
on the platform or others who have been here.
There are some very crucial parts of the program
that I would like to make a comment or two on: the tax
rebate, the increase in the oil import tariffs and the
proposed ceiling on increases in Government wages and Social
Security and other benefits. These three are only part of
a much more complex design for pulling the Nation out of
the economic doldrums and the energy crisis. Unfortunately,
we are in a status of economic doldrum and we do have an
energy crisis.
It seems to me that it is vital in both cases that
action be taken immediately by the Congress. It appears
that in the tax rebate for 1975 presented I indicated on 1974
income, the Congress is going to respond quite quickly. And
I am extremely interested, of course, in getting the Congress
to act immediately thereafter on the energy package.
Now, the important fact is that the energy plan
which has been reviewed by others here today goes far beyond
trying to reduce consumption of imported oil through price
levers. The plan that is very comprehensive tackles the need
for more domestic sources, the better use of energy and the
research for new energy sources, and let me say a word or
two about each of the three categories.
Better or more domestic sources. This includes
a much broader program of oil and gas exploration in the
United States. The facts are that since 1968 or '69 our
exploration for more gas and more oil in the United States
has dropped off significantly. If we are going to develop
more domestic oil and gas we have to have an incentive for
those people who are in that business and the program that
I have submitted to the Congress provides for that.
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Now, the second is the better use of energy. What
we hope to do here in a number of cases, and I will just
give one or two, is to cut down the use of energy by, for
example, the insulation in homes and in buildings generally.
The program provides a 15 percent tax credit for up to
$1,000 for a homeowner to install storm windows or insulation.
The best estimate is that this will save about 200 ---
MR. ZARB: 300,000, Mr. President.
THE PRESIDENT:
---
300,000 barrels per day and it
will cost the Federal Treasury approximately $500 million,
but it will improve the efficiency of homes and it will cut
down as I indicated, the utilization of some 300,000 barrels
a day.
Research for new sources: New sources of energy,
solar, geothermal -- I was in Los Alamos last July and saw
some of the research and development work that was being
undertaken by the AEC at that time. Geothermal has a
great potential, certainly in particular areas of our
country and under the new energy research and development
agency, ERDA, with Bob Seamans as the head of it, we are
consolidating and coordinating the research in this area
as well as solar and some of the others.
What we need is to actually restyle our entire
national approach to energy production and energy consumption.
It is a complex subject and if you had seen the number of
volumes that were presented to me for reading, the number
of volumes that I have to look at in selecting options, I
think you would share the view that it is a very complex
subject. But it is a problem that has to be met and the
program that I have submitted in my judgment will meet and
will solve it.
But in order to get it going both in the Congress
and otherwise, the public has to understand it. And all
we ask of you is to understand it yourselves and give the
facts.
I think if the facts are laid out on the table,
the American people will support it.
Now, the one-time tax rebate is a matter of great
concern because it deals directly with the manner and the
amount of money to be put back into the taxpayer's pocket.
This rebate has been integrated very carefully with the
other tax proposals. We are not looking at just one segment
of the economic picture.
In the drawing up of these proposals the emphasis
was on the continuing economic health of all taxpayers, low
as well as middle income citizens. Our economic recovery,
obviously, cannot be accomplished simply by a one shot tax
rerate. If we are to return to a stable, balanced and growing
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economy, a good business climate, we have to pursue a program
that treads a very prudent line between economic stimulation
and personal sacrifice.
Of course, a proposal such as the five percent
ceiling on Social Security increases for 1975 is a perfect
target for irresponsible politicking. I emphasize that this
is a ceiling. We expect increases, but a ceiling of five
percent under the current circumstances in my judgment can
be justified.
There is a legitimate national concern which I
happen to share about the impact of inflation on fixed
income of our older citizens. The proposed ceiling on the
size of these increases in Federal benefits is coupled with
plans for a moratorium on new Federal spending programs
and a ceiling on Federal salaries and let me illustrate what
I mean.
Shortly after I became President in October of
last year I proposed to the Congress that the cost of living
increase that was then expected of about a 5.4 percent for
Federal salaries, I recommended that it be deferred for six
months and the justification for it was that a six-month
deferral of a pay increase for Federal employees, some
2,100,000 and roughly 2,100,000 for military personnel, would
have saved the Federal Treasury $700 million.
Now at that time we were faced with the serious
problem, with the prospective deficit. I thought it made
sense to ask for that deferral. Unfortunately, the Congress
under the procedure that was available rejected my recommendation.
I think it made sense. I wish the Congress had approved it.
But what we are trying to do in 1975 is to put a
five percent ceiling on Federal pay increases just as we
have recommended a ceiling for Social Security, Federal
retirement, both civilian and military.
Now it may be good politics for some critics to
suggest that we start reducing the growth in Federal spending
somewhere else, areas other than Social Security, pay increases
for Federal employees, both civilian and military, retire-
ment benefits for Federal employees and the military, but
in my judgment the time has arrived when politically unpopular
decisions must be made and in this case if we put this
five percent cap or ceiling on all of these categories the
reduction in anticipated expenditures for the Federal
Government will be $6.6 billion, a fair amount of Federal
funds.
My point is quite simple. If we do not begin the
task and as I see the picture we will be doing disservices to
the people we most want to help. Fortunately, there is
something in our national character that seems to summon
strength when the country is confronted with difficult
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challenges and that is why I happen to believe that the
American people will accept, and will respond to the economic
and energy proposals we have laid before them and before
the Congress.
I intend to explain, to hopefully persuade the
Congress and the American people to respond. I will take my
case directly to the American people. Justas I believe it
is the President's duty to make hard choices, I also believe
the choices must be explained to the most important forum
there is, some 213 million Americans. Your help in just
explaining the facts -- we don't expect you to be prejudiced
one way or another, but if you can get the facts out, this
is vitally important to an honest dialogue and effective
decision-making.
I appreciate your concern by being here today and
I look forward to seeing you around the country where I hope
to be in the next several months.
Thank you very much.
(Applause.)
MR. WARREN: Thank you.
That completes our session today. We have complete
packets of information out here for those of you who want
them.
END (4:50 P.M. EST)