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Meetings with Ford Cabinet, 11/76
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148859
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Meetings with Ford Cabinet, 11/76
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collections
Records of the Office of the Staff Secretary
1976 Campaign Transition File
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Simon, William E., 1927-2000
Burns, Arthur F. (Arthur Frank), 1904-1987
Lynn, James Thomas, 1927-2010
Cabinet
Ex-presidents
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1976-11-01
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11
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1976
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1976-11-01
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11
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1976
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Meetings With Ford Cabinet, 11/76
Folder Citation: Collection: Office of Staff Secretary; Series: 1976 Campaign Transition File;
Folder: Meetings With Ford Cabinet, 11/76; Container 2
To See Complete Finding Aid:
http://www.jimmycarterlibrary.gov/library/findingaids/Staff_Secretary.pdf
WITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)
FORM OF
CORRESPONDENTS OR TITLE
DATE
RESTRICTION
DOCUMENT
Memo
Watson, Aaron, Steadman to Carter, 22 PP
Re: Defense Department
11/20/76
A
OPENED 1/17/13
FILE LOCATION
Carter Presidential Papers, Staff Offices, Office of Staff Secretary, Pre-Presidential
Handwriting & Transition File, Meetingswith Ford Cabinet, Box 3
11/76
RESTRICTION CODES
(A) Closed by Executive Order 12356 governing access to national security information.
(B) Closed by statute or by the agency which originated the document.
(C) Closed in accordance with restrictions contained in the donor's deed of gift.
NATIONAL ARCHIVES AND RECORDS ADMINISTRATION
NA FORM 1429 (6-85)
U
TO:
PRESIDENT-ELECT CARTER
FROM:
ECONOMICS TRANSITION TEAM
RE:
NOVEMBER 22, 1976 MEETING SECRETARY SIMON
DATE:
NOVEMBER 20, 1976
WE UNDERSTAND THAT YOU WILL MEET WITH SECRETARY SIMON ON
MONDAY, AND THAT HE INTENDS TO BRIEF YOU ON ECONOMIC, FINANCIAL
AND OTHER MATTERS CURRENTLY AFFECTING THE TREASURY DEPARTMENT.
THE PURPOSE OF THIS MEMORANDUM IS TO PROVIDE YOU BACKGROUND INFORMATION
FOR THIS MEETING AND TO SUGGEST QUESTIONS WHICH YOU MIGHT ASK OF
SIMON.
BECAUSE SECRETARY SIMON IS ONE OF THE MOST IDEALOGICAL MEMBERS
OF PRESIDENT FORD'S CABINET, HIS OPINIONS ON DOMESTIC ECONOMIC
POLICY ARE NOT LIKELY TO GIVE YOU A VERY BALANCED VIEW. WE BELIEVE
IT WOULD BE MOST USEFUL TO DRAW HIM OUT ON INTERNATIONAL ECONOMIC
PROBLEMS AND THE NEW YORK CITY SITUATION.
I. INTERNATIONAL ECONOMIC AND FINANCIAL PROBLEMS
MOST EXPERTS BELIEVE THAT A SERIES OF IMPORTANT INTERNATIONAL
ECONOMIC AND FINANCIAL PROBLEMS MAY CONFRONT YOUR ADMINISTRATION
IN ITS FIRST FEW MONTHS. THE ECONOMIES OF THE MAJOR INDUSTRIALIZED
NATIONS ARE INCREASINGLY INTERDEPENDENT, AND THESE PROBLEMS THUS CAN
AFFECT OUR OWN ECONOMIC RECOVERY.
FIRST, OPEC IS WEIGNING AN INCREASE IN THE PRICE OF ITS EXPORTED
OIL AND HAS BEEN PLANNING A DECEMBER 15 MEETING TO ACT ON IT. THERE
HAVE BEEN INDICATIONS THAT AN INCREASE OF 10Z OR SLIGHTLY MORE HAS
BEEN CONSIDERED. ECONOMIC MINISTERS OF MANY IMPORTING COUNTRIES HAVE
ELECTROSTATIC REPRODUCTION MADE FOR
PRESERVATION PURPOSES
- 2 -
ARGUED THAT SUCH AN INCREASE COULD SLOW OR EVEN ABORT THEIR ECONOMIC
RECOVERIES, AND IT OBVIOUSLY WOULD HAVE A NEGATIVE EFFECT ON GROWTH
AND INFLATION TRENDS IN THE U.S. AS YOU KNOW, THESE MINISTERS HAVE
BEEN TRYING TO PERSUADE OPEC. TO DEFER ITS MEETING OR THE PRICE
INCREASE ITSELF. THERE IS SOME POSSIBILITY THAT THERE WILL BE NO
OPEC PRICE INCREASE THIS YEAR so THAT OFEC CAN NEGOTIATE WITH A
NEW ADMINISTRATION.
SECRETARY SIMON, FORMERLY ADMINISTRATOR OF THE FEDERAL ENERGY
OFFICE, HAS HAD EXTENSIVE, PERSONAL EXPERIENCE IN NEGOTIATING WITH
OPEC MEMBER COUNTRIES ON RECYCLING PETRODOLLAR FLOWS, BILATERAL
ECONOMIC COOPERATION AGREEMENTS, ETC. YOU MIGHT ASK HIM:
1. WHAT ARE THE U.S. SOURCES OF NEGOTIATING LEVERAGE
WITH OPEC?
2. WHAT IS THE POWER COMPOSITION OF OFEC IS SAUDI
ARABIA DOMINANT; ARE IRAN AND/OR VENEZUELA ALSO HIGHLY INFLUENTIAL?
WHAT DO THESE NATIONS SEEK FROM THE U.S.?
3. WHAT ARE THE POSITIONS OF OUR INDUSTRIALIZED ALLIES
CONCERNING OPEC AND THE PROPOSED PRICE RISE?
4. WHAT OVERALL STRATEGY SHOULD THE U.S. PURSUE IN
RELATING TO OPEC?
SECOND, BRITAIN AND ITALY CONTINUE TO EXPERIENCE SEVERE ECONOMIC
CRISES, AND EACH IS NEGOTIATING WITH THE IMF FOR MULTI-BILLION DOLLAR
LOANS. THE LEADERSHIP IN BOTH COUNTRIES HAS BEEN ENCOUNTERING GREAT
POLITICAL DIFFICULTY IN PERSUADING THEIR LEGISLATURES TO SUPPORT NEEDED
AUSTERITY PROGRAMS, E.G. INCOMES POLICIES, REDUCED PUBLIC SPENDING,
ETC. INDEED, THERE IS SOME EVIDENCE THAT THE BRITISH LEADERSHIP
- 3 -
IS ENCOURAGING THE IMF TO INSIST ON SUCH AUSTERITY AS A CONDITION FOR
THE REQUESTED LOANS.
YOU MIGHT ASK SECRETARY SIMON:
1, HOW SEVERE ARE THE FINANCIAL PROBLEMS OF THOSE TWO
NATIONS? WILL THESE LOANS BE SUFFICIENT FOR ANY PROTRACTED
PERIOD OR WILL FURTHER CREDITS BE REQUIRED?
2. HOW FAR CAN THE IMF PUSH THESE NATIONS CONCERNING
AUSTERITY PROGRAMS WITHOUT CAUSING INTERNAL POLITICAL DISORDER?
THIRD, THERE ARE INCREASING INDICATIONS THAT NUMEROUS, LESSER
DEVELOPED COUNTRIES (LCD'S) MAY BE UNABLE TO REPAY ON SCHEDULE THEIR
EXTERNAL DEBTS. THE COMBINATION OF WORLDWIDE 1974/1975 RECESSION
CONDITIONS AND HIGHER OIL PRICES RESULTED IN LARGE BALANCE OF PAYMENTS
DEFICITS FOR MANY OF THESE, AND THEY RESORTED TO FOREIGN BORROWINGS,
A SUBSTANTIAL AMOUNT OF THESE LOANS WAS PROVIDED BY THE U.S. COMMERCIAL
BANKING SYSTEM.
IT MAY BE HELPFUL TO SOLICIT SIMON'S VIEWS CONCERNING THE LIKELIHOOD
AND SEVERITY OF "LDC BANKRUPTCIES," (THEY PROBABLY WOULD TAKE THE FORM
OF MORATORIA ON PRINCIPAL PAYMENTS) BOTH ON THE WORLD FINANCIAL SYSTEM
AND ON THE U.S. BANKING SYSTEM.
FOURTH, MANY HAVE CALLED FOR AN ECONOMIC SUMMIT MEETING,
IN THE IMMEDIATE FOST-INAUGURATION PERIOD, INVOLVING YOU AND THE
LEADERS OF THE MAJOR INDUSTRIALIZED NATIONS. TWO SUCH ME ETINGS HAVE
BEEN HELD DURING THE PAST TWO YEARS, AT RAMBOUILLET, FRANCE AND
PUERTO RICO. SUCH MEETINGS WOULD SEEM CONSISTENT WITH YOUR CALL
FOR CLOSER COOPERATION IN MACRO-ECONOMIC POLICY-MAKING AMONG THE INDUS-
- 4 -
TRIALIZED NATIONS. ON THE OTHER HAND, SUCH MEETINGS ARE OFTEN COSMETIC,
AND YOU WILL HAVE LITTLE TIME FOR SUCH ACTIVITIES IN THE FIRST FEW
MONTHS OF YOUR ADMINISTRATION. IT WOULD SEEM USEFUL, SINCE SECRETARY
SIMON PARTICIPATED IN THESE SUMMITS, TO ASK HIM WHETHER THEY CAN BE
7
GENERALLY USEFUL IN ACHIEVING COORDINATION IN POLICY-MAKING,
AND WHETHER ANOTHER ECONOMIC SUMMIT MEETING WOULD BE ADVISABLE IN
EARLY 1977.
II. NEW YORK CITY ISSUES FOR SIMON MEETING
YOU WILL BE GETTING A MORE DETAILED MEMO ON THE NEW YORK
SITUATION.
AS YOU KNOW, THE FEDERAL LAW ENACTED LAST YEAR FOR NYC
PROVIDED "SEASONAL FINANCING LOANS." THIS SERVES ONLY TO TAKE CARE OF
NYC'S CASH FLOW NEEDS -- I.E., TO PAY FOR ANTICIPATED REVENUE THAT
DOES NOT COME INTO THE CITY'S COFFERS WHEN IT IS NEEDED TO PAY BILLS.
THIS IS THE SAME AS REVENUE SHARING, WHICH COMES IN AT THE END OF THE
QUARTER BUT IS NEEDED TO MEET COSTS DURING A QUARTER. THE CITY
BORROWS AT THE BEGINNING OF A PARTICULAR TIME FERIOD AND PAYS OFF
LOANS AS THE ANTICIPATED REVENUE IS RECEIVED. THERE IS AT THE PRESENT
TIME A LIMIT OF $2.3 BILLION OF SEASONAL FINANCING FOR NEW YORK CITY
FOR THE PERIOD JULY 1976 TO JULY 1977. YOU SHOULD NOTE THAT THE FEDERAL
GOVERNMENT ACTUALLY MAKES MONEY ON THIS SEASONAL FINANCING FOR
NEW YORK CITY. THE FOLLOWING ARE THE MAIN QUESTIONS TO RAISE WITH
SIMON:
1. WHAT IS SIMON'S GENERAL ASSESSMENT OF THE NEW YORK
SITUATION?
- 5 -
2. WILL SIMON EXTEND THE SCHEDULED SEASONAL FINANCING
FOR DECEMBER?
3. WILL SIMON EXTEND THE SCHEDULED SEASONAL FINANCING FOR
JANUARY?
4. IF OTHER PARTIES TO THE CREDIT AGREEMENT, SUCH AS THE
PENSION FUNDS, DO NOT MAKE THEIR EXPECTED PURCHASES, CAN SIMON
PICK UP THOSE SEASONAL FINANCING NEEDS IN JANUARY?
5. WHAT IS SIMON'S GENERAL OPINION ON HOW TO HANDLE THE
$1 BILLION UNDER THE MORATORIUM THAT HAS BEEN DECLARED
UNCONSTITUTIONAL BY THE NEW YORK STATE COURT OF APPEALS?
6. WHAT IS SIMON'S GENERAL OPINION ON HOW THIS DECISION
ON THE MORATORIUM WILL AFFECT (A) THE MUNICIPAL MARKET; (B)
OTHER CITIES; (c) THE ECONOMY AS A WHOLE?
III. THE "PROCESS" OF U.S. ECONOMIC POLICY-MAKING
THERE HAVE BEEN NUMEROUS CHANGES IN THE ORGANIZATION OF OUR
ECONOMIC POLICY-MAKING, BOTH FOREIGN AND DOMESTIC, WITHIN THE PAST
SEVERAL YEARS. CURRENTLY, THE WHITE HOUSE-BASED ECONOMIC POLICY
effective>
BOARD (BPB) IS THE PRINCIPAL MECHANISM FOR FORMULATING ECONOMIC POLICIES
RELATING TO THE DOMESTIC ECONOMY. SECRETARY SIMON IS CHAIRMAN OF
EPB, WHICH HAS SOMEWHAT SUPERSEDED THE MORE NARROWLY BASED "TROIKA"
OF THE TREASURY SECRETARY, DIRECTOR OF OMB AND THE CHAIRMAN OF CEA.
CONCERNING FOREIGN ECONOMIC POLICY, THE "PROCESS" IS IN CONSIDERABLE
DISARRAY. THE COUNCIL ON INTERNATIONAL ECONOMIC POLICY (CIEP), IS
THEORETICALLY RESPONSIBLE FOR FORMULATING AND RECOMMENDING FOREIGN
ECONOMIC POLICIES. YET, MOST OBSERVERS BELIEVE IT IS USED ONLY
SLIGHTLY EVEN AS r CONSULTATIVE BODY. AS A RESULT, THERE ARE
- 6 -
MULTIPLE U.S. SPOKESMEN CONVRYING DIFFERENT POSITIONS ON
IDENTICAL ISSUES INVOLVING INTERNATIONAL ECONOMIC AFFAIRS.
WE SUCCEST THAT YOU ASK SECRETARY SIMON THE FOLLOWING:
1. DOES THE PRESENT ECONOMIC POLICY BOARD REPRESENT A
SUCCESSFUL AFFROACH TO FORMULATING ECONOMIC POLICIES IN AN OPEN,
COLLABORATIVE MANNER? WHAT IMPROVEMENTS MIGHT BE MADE IN THIS
PROCESS?
2. HOW MIGHT THE PROCESS OF FOREIGN ECONOMY POLICY-MAKING
BE REORGANIZED? HOW SHOULD THE TREASURY AND STATE DEPARTMENTS
AND OTHER DEPARTMENTS, RELATE TO THE WHITE HOUSE ON IT?
IV. DOMESTIC ECONOMIC CONDITIONS
NUMEROUS LEADING ECONOMISTS ARE REDUCING THEIR ECONOMIC GROWTH
FORECASTS FOR THE FOURTH QUARTER AND 1977. THERE IS NO EXPECTATION
AT THE MOMENT, HOWEVER, OF A RECESSION NEXT YEAR. ALTERNATIVELY,
AN AVERAGE GROWTH RATE OF AFFROXIMATELY 5.5% (AND 6.5% NEXT YEAR)
OVER THE NEXT FOUR YEARS HAS BEEN ESTIMATED AS NECESSARY TO EVENTUALLY
REDUCE UNEMPLOYMENT TO THE 4-41% LEVEL WHICH YOU HAVE DISCUSSED. IT
IS INCREASINGLY QUESTIONABLE AS TO WHETHER THIS RATE NOW CAN BE ACHIEVED
FOR 1977, WITHOUT ADDITIONAL STIMULUS.
WE SUGGEST THAT YOU SOLICIT SECRETARY SIMON'S VIEWS CONCERNING
THE FOLLOWING. (IT SHOULD BE NOTED THAT HE IS QUITE CONSERVATIVE,
IS HIGHLY INFLATION-SENSITIVE, AND HAS GENERALLY EVIDENCED SATISFACTION
WITH THE "SLOW BUT STEADY" ECONOMIC PACE.)
- 7 -
1. HIS PERCEPTION OF THE CURRENT PACE OF THE ECONOMIC
RECOVERY; WHY THE "PAUSE" HAS BEEN EXTENDED, WHY BUSINESS
INVESTMENT AND UNEMPLOYMENT HAVE BEEN DISAPPOINTING, AND
WHETHER THIS PACE IS ADEQUATE/INADEQUATE FOR U.S. ECONOMIC AND
SOCIAL HEALTH?
2. HIS EXPECTATIONS CONCERNING THIS FOURTH QUARTER AND
1977; ECONOMIC GROWTH RATES, UNEMPLOYMENT AND INFLATION LEVELS,
ETC., AND WHY. IN PARTICULAR, WHAT EVIDENCE EXISTS TO SUPPORT
MR. GREENSPAN'S CONTENTION THAT THE PAUSE HAS ONLY "A SHORT
TIME TO GO" AND THE OFFICIAL FORD ADMINISTRATION FORECAST OF
5.7% REAL GROWTH IN 1977.
V. POLICY ALTERNATIVES CONCERNING ADDITIONAL ECONOMIC STIMULUS
AS YOU KNOW, A POLICY DEBATE IS RAGING OVER WHAT FORM OF
FISCAL STIMULUS MIGHT BE MOST APPROPRIATE AND EFFECTIVE. MANY ARGUE
THAT ONE-TIME TAX REBATES OR OREDITS TO INDIVIDUALS CAN PROVIDE THE
"QUICKEST" STIMULUS. OTHERS BELIEVE THAT ONE-TIME INDIVIDUAL TAX
CUTS ARE PRIMARILY SAVED, NOT SPENT, AND THAT PERMANENT TAX REDUCTIONS
ARE MORE EFFECTIVE. STILL OTHERS CONTEND THAT A MIX OF INDIVIDUAL
AND CORPORATE TAX REDUCTIONS OR INCENTIVES, E.G. LIBERALIZED DEPRECIATION
RATES, HIGHER INVESTMENT TAX CREDIT RATES, SHOULD BE USED,
Which?
OF COURSE, A SEPARATE SCHOOL OF THOUGHT ARGUES FOR SPENDING
STIMULUS ALONE, OR A COMBINATION OF TAX REDUCTIONS AND INCREASED
SPENDING. THE ONLY AVAI LABLE APPROACH TO INCREASED 1977 SPENDING
INVOLVES USE OF EXISTING PROGRAMS. THOSE RELATING TO COUNTERCYCLICAL
ASSISTANCE, GIVEN THE PLIGHT OF CENTRAL CITIES AND DECLINES IN THEIR
- 8 -
PUBLIC EMPLOYMENT, HAVE BEEN FREQUENTLY MENTIONED. ADDITIONALLY,
INCREASED SPENDING FOR PUBLIC WORKS AND MANPOWER TRAINING ALSO HAS
BEEN RECOMMENDED.
IT MIGHT BE USEFUL TO OBTAIN SECRETARY SIMON'S VIEWS CONCERNING:
-- THE ADVISABLE FORM OF FISCAL STIMULUS; TAX POLICY ALONE,
AND IF so, WHAT FORM OF TAX INCENTIVES TO GROWTH; SPENDING
POLICY ALONE, AND WHAT CATEGORY OF SPENDING; A MIX OF TAX AND
SPENDING POLICIES, WHICH ONES AND WHY.
YOU SHOULD INDICATE TO HIM THAT YOU WOULD LIKE YOUR STAFF TO
COOPERATE WITH HIS STAFF ON THE TECHNICAL QUESTIONS INVOLVED.
Bible
TO:
PRESIDENT-ELECT CARTER
Geven book
FROM:
BO CUTTER
JERRY JASINOWSKI
Nixon. Selup LEA
JACK WATSON
RE:
MEETING WITH CHAIRMAN BURNS
DATE:
NOVEMBER 20, 1976
IT IS ESSENTIAL IN YOUR MEETING WITH CHAIRMAN BURNS THAT YOU
SET THE AGENDA FOR WHAT SHOULD BE DISCUSSED AND THAT HE NOT BE ALLOWED
TO DOMINATE THE DISCUSSION, HE COULD EASILY DOMINATE BECAUSE HE IS
ONE OF THE BEST ECONOMISTS IN THE COUNTRY, WITH GREAT DISCUSSION AND
NEGOTIATING SKILLS. HE HAS A VAST KNOWLEDGE OF HOW THE ECONOMIC AND
POLITICAL SYSTEM WORKS.
I. APPROACH TO THE MEETING
WE RECOMMEND THAT YOU HAVE THE FOLLOWING OBJECTIVES IN MIND FOR
THIS INITIAL MEETING WITH ARTHUR BURNS:
1. TO TAKE THE MEASURE OF BURNS' INTELLECT AND STYLE AND TO
ESTABLISH A BASIS FOR FUTURE COOPERATION BETWEEN THE WHITE HOUSE AND
THE FEDERAL RESERVE. SUCH COOPERATION DESTRABLE AS IT MAY BE --
REQUIRES CERTAIN UNDERSTANDINGS: SPECIFICALLY, THAT THE FEDERAL
ELECTROSTATIC REPRODUCTION MADE FOR
RESERVE'S MONETARY INDEPENDENCE DOES NOT EXTEND TO INDEPENDENCE IN
PRESERVATION PURPOSES
SETTING NATIONAL ECONOMIC GOALS; AND THAT THE PRESIDENT HAS EVERY RIGHT
TO EXPECT ARTHUR BURNS' ECONOMIC POLICY ADVICE TO BE CONVEYED TO HIM
IN PRIVATE RATHER THAN THROUGH THE PRESS.
2. TO SEEK BURNS' VIEW OF THE CURRENT STATE OF THE ECONOMY AND
THE OUTLOOK FOR NEXT YEAR;
3. TO DISCUSS WITH BURNS YOUR ECONOMIC GOALS FOR NEXT YEAR AND
TO DETERMINE THE EXTENT TO WHICH HE WILL SUPPORT THEM;
- 2 -
4. TO SOLICIT HIS VIEWS ON THE APPROPRIATE FISCAL POLICY ACTIONS
THAT SHOULD BE TAKEN NEXT YEAR IF THE ECONOMIC RECOVERY CONTINUES TO
BE SLUGGISH;
5. TO SOLICIT BURNS' VIEWS ON THE COURSE OF MONETARY POLICY
NECESSARY TO SUPPORT THE ECONOMIC RECOVERY; AND
6. TO DISCUSS WITH BURNS HOW MONETARY AND FISCAL POLICY CAN BE
PROPERLY COORDINATED. THIS WOULD INCLUDE A DISCUSSION OF YOUR POSITION
THAT THE FED CHAIRMAN SHOULD SERVE A TERM COTERMINOUS WITH THE PRESIDENT.
IN DISCUSSING ALL OF THE ABOVE, WE SUGGEST THAT YOU PRESS
BURNS FOR HIS JUSTIFICATION FOR THE POSITIONS HE TAKES. INDICATE
YOU WOULD LIKE YOUR STAFF TO WORK WITH HIS STAFF ON THE TECHNICAL
ASPECTS OF THE ISSUES YOU WILL BE DISCUSSING. YOU SHOULD ALSO ASK
BURNS FOR A CONFIDENTIAL MEMORANDUM ON THE ISSUES YOU WILL BE
DISCUSSING. WE STRONGLY URGE YOU NOT TO MAKE ANY COMMITMENTS TO BURNS'
VIEWS IN THIS FIRST MEETING.
II. ECONOMIC OUTLOOK AND THE PROSPECTS FOR CONTINUED RECOVERY
EARLY THIS YEAR THE ADMINISTRATION PREDICTED THAT THE ECONOMY
WOULD GROW BETWEEN 6-61% AND THAT THE UNEMPLOYMENT RATE WOULD BE
REDUCED A FULL PERCENTAGE POINT. IT IS EXTREMELY UNLIKELY THAT THIS
FORECAST WILL NOW BE REALIZED.
AFTER A VERY STRONG FIRST QUARTER THIS YEAR, REAL GROWTH, AS
MEASURED BY GNP, HAS SLOWED CONSIDERABLY. GROWTH RATES OF 4.5
PERCENT IN THE 2ND QUARTER AND 3.8 PERCENT IN THE THIRD, WHILE
ADEQUATE IF WE WERE AT FULL EMPLOYMENT, WERE TOO WEAK TO PERMIT ANY
REDUCTION IN THE EXTREMELY HIGH UNEMPLOYMENT RATE. IN FACT, THE
- 3 -
UNEMPLOYMENT RATE WAS HIGHER IN OCTOBER THAN IN JANUARY, 1976.
ALTHOUGH THE REASONS FOR THIS SLOWER GROWTH ARE NOT ENTIRELY
CLEAR, SEVERAL SECTORS HAVE BEEN WEAKER THAN EXPECTED. FIRST, THE
GOVERNMENT SECTOR, BECAUSE OF THE SHORTFALL IN SPENDING DURING BOTH
FY 1977 AND THE TRANSITION QUARTER, DID NOT PROVIDE AS MUCH STIMULUS
TO THE ECONOMY AS CONGRESS INTENDED. SECONDLY, THE LONG ANTICIPATED
RECOVERY IN BUSINESS INVESTMENT CAME LATE AND HAS THUS FAR BEEN VERY
WEAK. BUSINESS HAS TAKEN A CAUTIOUS APPROACH TO EXPANSION IN PLANT
AND EQUIPMENT, PERHAPS IN PART BECAUSE OF THE SEVERITY OF THE 1974-75
RECESSION, AND IN PART BECAUSE OF THE POLITICAL UNDERTAINTIES IN AN
ELECTION YEAR.
THE OUTLOOK FOR THE FOURTH QUARTER OF THIS YEAR IS NOT
ENCOURAGING. THE FEW INDICATORS FOR OCTOBER WHICH ARE ALREADY
AVAILABLE, EMPLOYMENT, INDUSTRIAL PRODUCTION AND RETAIL SALES, SUCGEST
ANOTHER WEAK QUARTER OF GROWTH, IN THE RANCE OF 3-4%. SUCH A RATE OF
GROWTH COULD LEAD TO FURTHER SMALL RISKS IN THE UNEMPLOYMENT RATE.
YOU SHOULD SOLICIT BURNS' VIEWS ON THE CURRENT STATE OF THE
ECONOMY AND HIS EXPLANATION OF WHY THE RECOVERY HAS FALTERED.
WITH RESPECT TO 1977, WHILE MANY FORECASTERS ARE SCALING DOWN
THEIR ESTIMATES FOR GROWTH IN 1977, NO ONE IS PREDICTING ANOTHER
RECESSION NEXT YEAR. HOWEVER, A GROWTH RATE OF ONLY 4 PERCENT IN
1977 ( A NOT UNLIKELY PROSPECT GIVEN CURRENT POLICIES) WOULD LEAVE
UNEMPLOYMENT STUCK ON ITS ALREADY HIGH PLATEAU AND WOULD FURTHER LIMIT
YOUR ADMINISTRATION'S ABILITY TO FINANCE NEEDED SOCIAL PROGRAMS.
THE APPROXIMATE PARAMETERS OF THE POLICY DEBATE ARE THAT A
LIKELY GROWTH RATE OF 4-417 (OR LESS) IN THE FOURTH QUARTER AND THE
EARLY PART OF NEXT YEAR WOULD BE A CLEAR SIGNAL OF THE NEED FOR
- 4 -
IMMEDIATE ADDITIONAL STIMULUS IN EARLY 1977.
BURNS HAS SAID HE BELIEVES WE WILL HAVE A STRONG RECOVERY NEXT
YEAR. HIS PREDICTIONS IN THE PAST HAVE NOT ALWAYS BEEN GOOD --
HE MISSED THE TIMING AND MAGNITUDE OF THE 1974 RECESSION. YOU SHOULD
ASK FOR THE SPECIFIC REASONS HE BELIEVES WE WILL HAVE A GOOD RECOVERY
NEXT YEAR.
III. ECONOMIC GOALS AND COOPERATION ON MONETARY AND FISCAL POLICY
YOU SHOULD MAKE CLEAR TO BURNS IN YOUR CONVERSATION THAT YOUR
TENTATIVE GOALS FOR 1977 ARE A 6 PERCENT GROWTH RATE IN REAL GNF,
WHICH WILL PERMIT A REDUCTION IN THE UNEMPLOYMENT RATE TO THE 61%
RANGE BY THE END OF THE YEAR. YOU SHOULD FURTHER STRESS THAT THESE
TARGETS CAN AND SHOULD BE ACHIEVED WITHOUT ANY SIGNIFICANT
ACCELERATION OF THE INFLATION RATE, GIVEN CURRENT UNDER-UTILIZATION
OF BOTH LABOR AND PLANT CAPACITY.
THIS IS THE MOST IMPORTANT AREA OF DISCUSSION FOR YOUR FIRST
MEETING. IT WOULD BE USEFUL AT THIS POINT TO ASSURE BURNS THAT YOU
WANT TO AVOID A SITUATION IN WHICH THERE IS EITHER AN APPARENT OR
ACTUAL CONFLICT OVER INCOME COALS AND THE COORDINATION OF MONETARY
AND FISCAL POLICIES.
AS PRESIDENT, YOU WILL WANT TO CONSULT REGULARLY WITH THE
SECRETARY OF THE TREASURY, THE COUNCIL OF ECONOMIC ADVISERS, THE OMB
DIRECTOR AND THE CHAIRMAN OF THE FEDERAL RESERVE. YOU WILL ALSO WANT
TO ESTABLISH A WORKING RELATIONSHIP WITH THE FED CHAIRMAN TO INSURE
INFORMAL AND CONTINUING DISCUSSIONS OF IMPORTANT PROBLEMS AS THEY
ARISE. YOUR DESIRE FOR A PRODUCTIVE AND COOPERATIVE RELATIONSHIP
SHOULD BE MADE CLEAR; AS SHOULD YOUR INTENTION TO ASK FOR AND VALUE
HIS ADVICE. IN THIS RECARD, THE FOLLOWING ITEMS SHOULD BE DISCUSSED.
- 5 -
FIRST, YOU SHOULD STATE YOUR BELIEF THAT IT IS THE RESPONSIBILITY OF THE
ADMINISTRATION AND THE CONGRESS -- NOT THE FEDERAL RESERVE SYSTEM --
TO ESTABLISH ECONOMIC GOALS. BURNS SHOULD BE ASKED ABOUT THE PROCESS
OF SETTING GOALS AND THE FEDERAL RESERVE'S ROLE IN IMPLEMENTING THEM;
HE SHOULD ALSO BE ASKED WHAT HE THINKS OUR PRESENT ECONOMIC GOALS
OUGHT TO BE.
SECOND, YOU SHOULD ASK HIM WHAT MECHANISMS SHOULD BE USED TO
COORDINATE MONETARY AND FISCAL POLICY. DOES HB BELIEVE THAT THE
QUADRIAD MECHANISM (TREASURY, OMB, CEA AND THE FED) SHOULD BE
REESTABLISHED AS THE MEANS FOR FOSTERING COOPERATION! YOU SHOULD
CONVEY TO BURNS YOUR BELIEF THAT YOU HAVE A RIGHT TO RECEIVE HIS
POLICY ADVICE IN PRIVATE AND BEFORE AN ISSUE IS RESOLVED, RATHER THAN
THROUGH THE PRESS AND AFTER YOU HAVE MADE A DECISION.
THIRD, IT WOULD BE APPROPRIATE TO BRING UP THE QUESTION OF THE
FED CHAIRMAN'S TERM OF OFFICE. THROUGHOUT THE CAMPAIGN YOU PROPOSED
THAT THE CHAIRMAN'S TERM BE MADE COTERMINOUS WITH THAT OF THE PRESIDENT.
IN THE PAST, BURNS HAS SUPPORTED THE CONCEPT OF A 4 YEAR TERM FOR
THE FED CHAIRMAN, LAGGED ONE YEAR AFTER THE PRESIDENT TAKES OFFICE.
IN OTHER WORDS, IF A PRESIDENT ASSUMES OFFICE IN JANUARY, 1977, HE
COULD APPOINT A NEW CHAIRMAN IN JANUARY, 1978. BURNS CLAIMS THAT THE
PRESIDENT NEEDS AT LEAST A SHORT PERIOD OF CONTINUITY IN ECONOMIC
POLICY FROM ONE ADMINISTRATION TO THE NEXT. WHILE REASSURING BURNS
THAT HIS OWN TERM WOULD BE UNAFFECTED BY ANY LEGISLATION YOU INTRODUCE,
IT WOULD BE USEFUL TO DRAW HIM OUT IN MORE DETAIL ON HIS VIEWS ON A
COTERMINOUS TERM. (INCIDENTALLY, FORMER FED CHAIRMAN WILLIAM McCHESNEY
MARTIN SUBMITTED HIS RESIGNATION PRO-FORMA TO PRESIDENT-ELECT
BISENHOWER, KENNEDY, JOHNSON AND NIXON.)
- 6 -
IV. MONETARY POLICY AND THE FEDERAL RESERVE'S SUPPORT OF THE RECOVERY
ON FRIDAY, THE FED ANNOUNCED A REDUCTION IN THE DISCOUNT RATE
(THE RATE WHICH BANKS PAY WHEN THEY BORROW FROM THE FEDERAL RESERVE)
FROM 51% TO 51%. THIS IS A DEFINITE SIGN THAT THE FED IS CONCERNED
ABOUT THE STRENGTH OF THE ECONOMY. ITS TIMING IMMEDIATELY BEFORE YOUR
MEETING WITH BURNS SUGGESTS THAT HE IS SEEKING TO AVOID CONFLICT
AND THAT HR SHARES YOUR CONCERN ABOUT THE ECONOMIC RECOVERY.
IN THE LAST 6 MONTHS, THE MONEY SUPPLY, AS DEFINED BY M1 HAS
INCREASED SLIGHTLY MORE THAN 5 PERCENT (M₁ CONSISTS OF CURRENCY AND
CHECKING ACCOUNTS). THIS RATE OF INCREASE HAS PERMITTED THE TREASURY
BILL RATE TO FALL SLIGHTLY (IT IS NOW BELOW 5 PERCENT) AND THE PRIME
RATE TO DROP TO 6½. AT THE PRESENT TIME IT WOULD BE FAIR TO SAY THAT
WHILE MONETARY POLICY IS NOT IMPEDING THE RECOVERY, NEITHER IS IT
PROVIDING STRONG SUPPORT.
IT WOULD BE COUNTERPRODUCTIVE FOR YOU TO ENGAGE BURNS IN A DEBATE
ABOUT THE LEVELS OF M1 OR M2 AT THIS TIME. HE HAS EFFECTIVELY
THWARTED CONGRESSIONAL OVERSIGHT OF HIS MONETARY POLICIES IN THE PAST
BY LITERALLY SNOWING CONGRESS WITH HIS MONEY SUPPLY NUMBERS. YOU
SHOULD, HOWEVER, EXPLORE WITH HIM WHAT SUPPORT HE WILL GIVE TO YOUR
REAL GROWTH AND EMPLOYMENT OBJECTIVES FOR NEXT YEAR THROUGH AN
ACCOMMODATIVE MONETARY POLICY.
V. FISCAL POLICY AND TAX CUTS
YOU SHOULD SOLICIT BURNS' VIEWS ON WHETHER HE WOULD SUPPORT
ADDITIONAL FISCAL STIMULES IF THE ECONOMY CONTINUES TO FALTER. THE
RECENT STATEMENTS THAT HE IS OPPOSED TO A TAX CUT HAVE BEEN EXAGGERATED
- 7 -
BY THE PRESS. WE UNDERSTAND THAT HE OPPOSES A TAX REBATE BECAUSE
HR BELIEVES MOST OF THE MONEY IS SAVED RATHER THAN SPENT, BUT MAY
SUPPORT A BROAD-BASED, PERMANENT TAX CUT.
WE SUCCEST YOU ASK HIM:
a) HOW MUCH THE ECONOMY WOULD HAVE TO FALTER BEFORE HB WOULD
CONSIDER A TAX CUT;
b) THE FORM OF A TAX CUT HE WOULD SUPPORT AND WHY; AND
c) WHAT EXPENDITURE INCREASES, IF ANY, WOULD BURNS SUPPORT
TO STIMULATE THE RECOVERY.
VI. BURNS' PHILOSOPHY
ALTHOUGH CONSERVATIVE, BURNS IS NOT A DOCTRINAIRE MAN. IN THE
PAST HE HAS SUPPORTED:
a) THE GOVERNMENT AS EMPLOYER OF LAST RESORT;
b) SOME FORM OF VOLUNTARY WAGE AND PRICE POLICIES; AND,
c) THE USE OF TARGETTED EMPLOYMENT PROGRAMS.
IF THERE IS TIME, YOU MAY WANT TO DRAW HIM OUT ON SOME OF THESE
QUESTIONS.
VII, THE NEW YORK CITY SITUATION
IF TIME PERMITS, IT WOULD BE USEFUL FOR YOU TO SOLICIT BURNS'
VIEWS ON THE NEW YORK SITUATION, AND WHAT IMPACT THE RECENT NEW YORK
COURT ACTION TO INVALIDATE THE $1 BILLION DEBT MORITORIUM MAY HAVE
ON THE FINANCIAL MARKETS AND THE ECONOMY AS A WHOLE.
VIII. RECOMMENDATIONS ON APPOINTMENTS
WHILE THIS HAS LESS PRIORITY THAN THE ABOVE ITEMS, BURNS IS A
- 8 -
PROUD MAN AND HE WOULD BE FLATTERED TO BE ASKED ABOUT RECOMMENDATIONS
FOR SECRETARY OF THE TREASURY AND CHAIRMAN OF THE COUNCIL OF
ECONOMIC ADVISERS.
CARTER- - MONDALE
TRANSITION PLANNING GROUP
P.O. Box 2600
Washington, D.C. 20018
C
MEMORANDUM FOR THE PRESIDENT-ELECT
FROM:
HEW Transition Team
SUBJECT:
Talking points for your meeting with HEW Secretary,
F. David Mathews
OVERVIEW
The Department of Health, Education,& Welfare has over 157,000
employees and an estimated budget (FY 1977) of $142 billion -- more
than 1/3 of the federal budget. The Department's responsibilities
encompass:
1. Administration of most (but not all) federal income security
and health insurance programs -- Medicare, Social Security, and
the Supplemental Security Income Program for the Aged, Blind and
Disabled (under the Social Security Administration), Medicaid and
Aid to Families with Dependent Children (under the Social and
Rehabilitation Service.) HEW does not, however, have responsibility
for unemployment compensation (Labor Department), food stamps
(Agriculture), the Federal Employees' Health System (Civil Service
Commission), or the Veterans Administration.
2. Administration of federal grant and loan programs (direct and
through state and local government) for health, education, and
social services.
ELECTROC
REDUCTION MADE FOR
PURPOSES
-2-
3. Responsibility for basic and applied research in the human
services through the National Institutes for Health, the Alcohol,
Drug Abuse & Mental Health Administration, the National Institute
for Education, and research programs conducted by the Office for
Child Development and other agencies within the Department.
4. Major law enforcement/compliance responsibilities -- including
Food and Drug Administration; the Office for Civil Rights, which
enforces prohibitions against discrimination based on sex or
handicap, as well as race; and the regulatory responsibilities of
the Social and Rehabilitation Service for setting and enforcing
standards for nursing homes and other health providers.
The Department's activities are so diverse and its structure
so complex that the job of the Secretary is often characterized as
"impossible."
The consensus among observers is that Secretary Mathews has
dealt with the problem by withdrawing to some extent from day-to-day
administration to focus on two related overall problems --
simplification of HEW regulations and opening the entire HEW decision-
making process to greater participation by the public, state and local
government, and other constituent groups. Neither effort has reached
its final stages. This withdrawal from day-to-day administration
has lead to characterization of Secretary Mathews as a "philosopher",
as compared to more active recent "administratora" such as
Secretaries Richardson and Weinberger.
-3-
SUGGESTED STRATEGY FOR THE MEETING
In a short meeting, it may be useful to focus on general
policy and management questions, such as:
1. Refining your own "job profile" for the HEW Secretary,
Undersecretary and agency team, and exploring alternative
leadership models.
2. Exploring the management problems of the agency.
3. Defining interrelationships between a line agency and the
White House, OMB, the Congress, and outside constituencies.
Although we have included material relevant to specific
areas of federal health, education, and welfare policy, you may
find a focus on more general management questions to be most
productive.
GENERAL POLICY/MANAGEMENT
1. Role of the HEW Secretary: As you will recall, your
current "job profile" for the HEW Secretary indicates that the
position requires leadership in three critical areas: (a) political
and legislative initiative, (b) management, and (c) program
integration. In order to help determine where your own priorities
lie among these areas, you may want to explore with Secretary
the way he has seen his role, and how he has viewed that of the
Undersecretary.
-4-
2. Relationship of HEW to the White House/OMB: In view
of your desire to delegate primary responsibility for administration
of the federal government to your cabinet officers, you may want
to ask the Secretary what he would consider to be the most
productive or appropriate relationship between the Executive
Office of the President and an agency head. What type of support
does a Secretary need to run an agency effectively? Most observers
agree that there have been increasingly strained relations between
HEW and both the White House and OMB over the past eight years.
3. Relationship of HEW to the Congress: Inasmuch as HEW
is accountable to more than 30 Congressional committees and
subcommittees, you may want to explore the Secretary's views of
Hill relationships. You might want to seek his recommendations on
ways for HEW to work most effectively with key leaders,
particularly Representative Ullman and Senator Long. In particular,
how much of his own time should the Secretary devote to
Congressional relations; how much to management?
4. Manageability of the HEW enterprise: In view of your
administration's priority on management and reorganization, you
may want to focus on the critical issue of whether, in fact, the
concept of the HEW agency is workable. Ideally, should health,
education, and welfare functions be interrelated on the federal agency
and/or local service delivery levels or should these agencies be
separated? What administrative changes would make the enterprise
more manageable? You may want to explore the Secretary's views
on a separate Department of Education. Should such a department
-5-
consist solely of education functions within the present
structure or should portions of other agencies -- such as job
training from the Labor Department -- be included, as well?
A related management issue concerns the Secretary's efforts
to try to simplify the language of federal regulations and solicit
citizen input on federal policy. He has devoted considerable
energy to this effort, including holding "town meetings" around the
country, directing that staff be trained in the use of simpler
language in writing regulations, and inviting persons to review
drafts of regulations. His assessment of progress to date and
necessary next steps to complete the project could be useful.
5. Intergovernmental Relations: HEW's relationship to
states and localities is an area of considerable controversy.
For example, what can be done generally to increase the level of
cooperation between HEW and state/local government in development
and implementation of policy, What should be the federal role in
education? In the area of civil rights?
6. Interdepartmental Relationships: As you know, some of the
most critical problems facing HEW cannot be handled by the
department in a vacuum, e.g., welfare and jobs. Therefore, you
may want to explore with the Secretary ways in which interdepartmental
issues -- particularly economic and labor market issues -- can be
dealt with effectively.
-6-
PROGRAM AREAS
1. Welfare Reform: As you know there are two approaches to
welfare reform: 1) an incremental approach which attempts to
rationalize and build on the existing system, and 2) fundamental
redesign and consolidation of income security programs. Pro-
ponents of the first method proceed on the assumption that a
multifaceted system is necessary to fulfill multiple needs, and
that each of the present proposals for major overhaul and
implification of the welfare system involves serious unresolved
design problems. Supporters of the second strategy argue that only
a total rewriting of income support laws can fully resolve the
inequities and inefficiencies of the present system.
During his tenure, Secretary Mathews has focused on the
first alternative -- administrative attempts to tighten and
improve the existing system (although his policy and planning
office has also worked on major reform proposals)
Based on his experience with attempts to reform the present
system, Secretary Mathews may have developed definite opinions
concerning the feasibility of further tinkering withthe system,
or he may have firm views on what sorts of reforms or consoli-
dation of programs may be warranted.
2. Social Security Financing: First, there are the short-term
deficits that have been generated primarily by recent inflation
and unemployment. The most recent projections indicate that,
even with steady economic growth, the Social Security Trust
-7-
Fund will have net annual shortfalls rising from $4.3 billion
in 1976 to $8.6 billion in 1981, when the Fund will be bankrupt.
The Disability Trust Fund is in even worse shape, with rapidly
rising caseloads now projected to drain the system by 1979.
Secondly, there is the long-term demographic problem of the
apparent increase in the ratio of retirees to wage-earners in
the period following 1990, leading to projections of massive
"doomsday deficits" in the trust funds by the end of the century.
The administration last January proposed a .6% increase
in the payroll tax rate, combined with minor benefit reductions,
and corrections to the overcompensation for inflation
in the schedule for payments to future retirees (so-
called "decoupling"). Secretary Mathews may be able to recommend
whether immediate (i.e., early 1977) action is necessary, given
the continued economic pause and the negative macroeconomic
impacts of a SS tax increase. He may also have recommendations
on alternatives to a tax rate increase.
3. Health:
A. Reorganization and Management: Senator Talmadge has
called for administrative reforms of Medicare and Medicaid in
S. 3205. Specifically, he seeks to combine the Medicare, Medi-
caid, Office of Nursing Home Affairs and Bureau of Quality
Assurance agencies into a single Administration for Health Care
Financing headed by an Assistant Secretary.
It would be useful to learn Mathew's views on these reorgan-
ization/administrative proposals and to see if he has alternative
proposals.
- 8 -
B. Cost Containment: During the decade from 1965 to
1975 per capita expenditures for health rose from $198 to $547,
an average annual increase of 10.7 per cent. Health care outlays
as a proportion of GNP have risen from 5.9% to 8.3%. The federal
percentage of national health expenditures has risen from 12%
to 28%.
Based on experience and the experiments undertaken by Social
Security and others, what are the most promising cost containment
techniques? How far along is HEW in developing prospective
reimbursement mothods for hospitals and for physicians? Are such
methods likely to be more effective than patient cost-sharing?
C. National Health Planning: The National Health Planning
and Resources Development Act of 1974 expires in 1977. Are any
changes needed in the Act to enable it to accomplish its mission
of controlling costs. How do we give local and state planning
agencies the incentive and muscle to control construction of new
hospital beds and the purchase of new equipment?
D. Immunizations: There has been considerable publicity
about the failure of Americans to take swine flu immunization
shots, but even better established immunization programs are not
being widely utilized. In 1974, 37% of children ages one to
four had not been immunized against polio. 448 had not been
immunized against Rubella. 40% had not been immunized against
measles. Are new efforts needed?
4. Education: During transition, we will be focusing on several
areas that you may want to explore with the Secretary. Four
- 9 -
subjects of special importance will be:
A. The Future Direction of Expiring Legislation: These
laws include the Elementary and Secondary Education Act, Emergency
School Assistance Act, impact aid, libraries, and school lunch.
B. Budget Amendments: We will be focusing on commitments
made during the campaign, including increased aid for handicapped,
career education, student aid for college students, and for aid
to the disadvantaged.
c. Options for a Potential Department of Education
D. White House Conference on Education: This is mandated
by law, to be held before December 1977. To our knowledge no
preparations for this conference have yet been made.
Most of these subjects relate to the broader question of
what constitutes the appropriate role of the federal government
in education. Legislative debates will continue to center on
categorical-versus-block grants approaches. Since the Secretary
is most familiar with problems of higher education, you may
want to solicit his views on the federal role with respect to
colleges and universities, inasmuch as they must deal with about
70 agencies at present for grants and contracts, without an
overall federal policy.
n
*
*
We have been in touch with relevant individuals within the
Department, with key congressional committee staffers, and with
outside experts, including Tom Joe, John Palmer, Wilbur Cohen,
Steve Kurzman (ex-HEW Assistant Secretary for Legislation), Ruth
Hanft, and John Molahan (urban Institute.)
November 20, 1976
MEMORANDUM FOR THE PRESIDENT-ELECT
FROM:
Jack Watson, W. Bowman Cutter
SUBJECT: Talking Points For Your Meeting with OMB Director
James T. Lynn, Monday, November 22
This memorandum consists of four parts: 1) a suggested strategy for the
meeting; 2) a brief profile of Lynn; 3) a list of substantive issues about
which you may wish to secure his views; and 4) specific requests for his co-
operation.
1. A Suggested Strategy for the Meeting
Lynn can be helpful to the transition in two ways: he can make available
to the Budget Analysis Group information and technical assistance in the de-
velopment of FY 76 and 77 spending estimates-which are needed for your first
economic policy decisions in January. He can also facilitate the development
of your FY 78 budget package, by authorizing OMB staff consultation and advice
to the Budget Analysis Group and the staff of your new OMB Director.
Lynn can refuse to help, on the grounds that OMB is heavily engaged in
President Ford's last budget, which is privileged. But he is likely to want
to be cooperative. It may help in securing his cooperation to begin your
discussion by asking his views on the role and functioning of OMB, and on the
operations of the federal government overall. He has a unique vantage point,
and you may find his views of some use. Therefore, it is suggested that you
approach the meeting in the following sequence:
a discussion of his views on OMB and the management and organization
of the government. [See Part 3, below].
a discussion of the best ways to facilitate a smooth transition.
[See Part 4, below].
ELECTROSTATIC REPRODUCTION MADE FOR
PRESERVATION PURPOSES
2
2. A Brief Profile of Lynn
James T. Lynn is 49 years old, and a native of Ohio. He is a graduate of
Western Reserve University and received his law degree from Harvard in 1951.
He was appointed Director of OMB in 1975 by President Ford. Before that he was
Secretary of the Department of Housing and Urban Development (1973 to 1975).
He first joined the Nixon Administration in 1969, as General Counsel, Department
of Commerce (later promoted to Under Secretary). Before entering government
service he engaged in private law practice, mainly in Cleveland, Chio.
Lynn has been given generally good marks in management as OMB director, but
he has not shown strong skills in economics. He is very bright, reasonably
straightforward, and an unabashed administration partisan.
At the meeting he will not agree to anything which will compromise Ford's
control over his last budget (and therefore shouldn't be asked). But he other-
wise will try to be cooperative and would be flattered if asked his views on
government.
3. Lynn's Views on the Role and Functioning of OMB, and the Operation of the
Government
You are well acquainted with each of the issues outlined below. Lynn may
not contribute to your understanding of them, but it is worth finding out.
A. The OMB Director's relations with the President, the White House
Staff and the Cabinet
Lynn has served under two presidents, each with very different styles of
operation. It would be useful to know how he views the relationship between
OMB and the Domestic Council.
In the Nixon Administration's scheme of things, the Domestic Council was
to develop domestic policy and OMB to allocate resources, over-see policy
execution, and evaluate results. This division of function has been viewed
3
with increasing scepticism by observers in and out of government, but it
would be helpful to have the perceptions of a direct participant.
Similarly, the National Security Council during the last eight years
attempted to preempt the field in national security policy development, with
particularly heavy emphasis upon strategic nuclear issues. Recently a budget
unit was created in the NSC staff, which enables the NSC to become the prin-
ciple forum for some of the more important budget decisions-for example,
Ford's choices on the Navy's shipbuilding programs last summer. Lynn may
shed some light on problems created by this fragmentation of the budget
process within the Executive Office of the President.
Lynn may also have interesting and worthwhile views on his relationship
with the Cabinet. Every president VOWS to make extensive use of the Cabinet,
yet all eventually have felt it necessary to center policy coordination and
the power to shape decision choices in the White House staff. Lynn may offer
insights as to the feasibility of reliance on the Cabinet, and the appropriate
relationship between the OMB Director and Cabinet officers.
B. Assessment of Agency Competence
Lynn is an organization and management buff, and as OMB Director has
principal responsibility for evaluating the organization and management of
federal agencies within the Executive Branch. Personalities of the Cabinet
officers aside, he may have useful comments on which agencies are organized
well to develop and manage their programs; which are organized well but man-
aged badly; and which are in serious trouble and need reorganization.
4
C. OMB Organization and Management
There are a host of issues regarding OMB which Lynn might like to discuss;
given the general thrust of your plans for OMB, five topics should be of par-
ticular interest:
First, how well does OMB make use of analysis in its efforts to develop
budget options and program alternatives for the President? There is some
evidence that efforts to expand OMB's analytic competence beyond budget re-
view and examination have been largely unsuccessful. It would be useful to
learn Lynn's views on the possibilities for strengthening OMB capacity for
analysis.
Second, how well does OMB's management role work? Lynn has made changes
from the original Ash/Malek formula which enshrined management by objectives,
though the agencies still view OMB's management initiatives as an unproductive
exercise in paper flow.. It would be useful to know what balance Lynn found
appropriate and what might be done in the future.
Third, what can be done to restore OMB's role in the defense and intel-
ligence budget process? Unlike other executive branch agencies, the Defense
Department's budget is not subjected to the normal independent review by
OMB. Instead, there is a "joint review" by DOD and OMB officials, which is
thoroughly dominated by the former. DOD determines the agenda, meetings
are held in the Pentagon, OMB representatives are drastically outnumbered,
etc. OMB does suggest alternatives to the President later in the year,
but its position generally is far weaker as concerns Defense vice the
other agencies. Changes to this process would permit greater control to
be exercised over the defense budget, which is roughly one-fourth of the
total Federal budget. Such changes also would permit greater budgetary
5
control of the intelligence community, most of which is funded within the
defense budget. Finally, and aside from procedural changes, it may be de-
sirable to reorganize and strengthen OMB's Directorate of National Security
and International Affairs.
Fourth, should OMB control the government reorganization process planned
for the new administration? OMB's present budget and management role gives
it a potent vantage point from which a reorganization plan might be success-
fully implemented. Lynn should have a good feel for the feasibility of such
a role for OMB.
Fifth, what are the prospects for multiyear budgeting? OMB must produce
a report to the Congress on February 24, 1977, on the possibilities for advance
appropriations and other forms of multiyear budgeting. Lynn should have a
well developed sense about procedures for shifting to a multiyear budget
process.
4. Transition Strategies
(Note: You might begin this discussion with a statement that you respect OMB's
heavy workload in the coming months, and that you also think it inappropriate
for your transition team to seek access to OMB's development of President Ford's
FY 78 budget and other activities involving his agenda.)
In this part of the discussion you should raise three issues:
First, how should the new OMB Director relate to Lynn? There obviously
will be background books, staff briefings, and lengthy discussions between
Lynn and your new director. What is more important are Lynn's views about
the most appropriate way for the new director to get up to speed smoothly and
6
quickly, when OMB more than any other federal agency will be engaged up to
virtually the last minute with President Ford's budget--and you must submit
your modifications to it a month after the Inauguration.
Second, what kinds of activities should the Transition Planning Group
(especially the Budget Analysis Group) undertake to smooth the transition?
In the main, the Budget Analysis Group will be busy developing the basis
for your budget choices, and assisting the new OMB director until he recruits
his staff. But Lynn may have suggestions from his vantage point of other
activities which will facilitate a smooth transition.
Third, will it be possible to arrange for immediate staff level contact
between OMB staff and the Budget Analysis Group? Direct contact with OMB staff
and agency budget personnel is necessary to draw on the unique professional
budgeting expertise of the Executive Branch. The Budget Analysis Group needs
access to the skills and experience of career budget professionals and to the
budget data regarding FY 1976, FY 77, and alternative revenue and expenditure
paths for FY 1978 and beyond. OMB and agency budget staff are the best--and in
many instances the only-informed source. For the next two weeks OMB staff will
not be very busy, as the agency appeal process has not yet started.
November 20, 1976
PERSONAL & CONFIDENTIAL
C
el
MEMORANDUM
TO:
Jimmy Carter
FROM:
Jack Watson
David Aaron
Dick Steadman
RE:
YOUR MEETING WITH SECRETARY RUMSFELD
Monday, November 22, 1976
Secretary Rumsfeld has since leaving Congress in 1969 been succes-
sively head of OEO, chief staffer for the Nixon Wage-Price operation,
Ambassador to NATO, White House Chief of Staff, and Defense Secretary
since November 20, 1975. As Secretary, he has not been deeply involved
in weapon systems decisions (left largely to Deputy Secretary Clements)
and he has not attempted strong centralized management of the Department.
He has concentrated on relations with the Hill, the press and the public and
on being a political counselor to President Ford. His skillful briefing
i
manner - especially on what he likes to call "Geo-Strategic" issues --
have been effective with Congress and the media, but he is not a sub-
stantive figure like Secretary Kissinger or his predecessor, James
Schlesinger.
Accordingly, it is our view and the consensus of your key defense
advisors that in this meeting you should seek to concentrate on organi-
zational and staffing issues, not the substance of defense policy or
international relations.
DECLASSIFIED
Per; Rac Project
ELECTROSTATIC REPRODUCTION MADE FOR
ESDN: NLC- 126-1-5-1-5
PRESERVATION PURPOSES
C NABA, DATE 11/29/12
2
It would be helpful if at some point you expressed your gratitude
for DoD cooperation and constructive attitude on transition matters.
I. ORGANIZATIONAL ISSUES
There are three specific organizational issues that you might wish
to discuss with Secretary Rumsfeld:
- Overall National Security Organization
-- DOD Organization and Management
--- Intelligence Community Organization
A. Overall National Security Organization
A key goal of the national security organization is to mesh
foreign policy -- presumably precumptively the business of the State Department --
with the massive and costly Defense establishment. The President needs
to foster effective leadership and decisions in these closely related
areas, and to fit the Secretary of Defense in the various major organi-
zational models.
1. Role of the National Security Advisor
The present system has severely reduced the role of the White
House National Security Advisor - General Brent Scowcroft -- and left
foreign policy largely in the hands of Secretary Kissinger. There is a
view that one of the chief problems of this arrangement is inadequate
coordination with Defense on political-military matters (and with
Treasury, etc., on international economic matters).
Clearly there have been rivalries and disputes between
Rumsfeld and Kissinger over SALT and other issues. No doubt some of
these problems (and some of the successes) of the present system are
attributable to the personalities of the two men, but there may be
general issues as well.
3
He is unlikely to volunteer comments but if questioned,
Secretary Runsfeld may be prepared to give fairly frank assessments of
the present system - divorced from personality issues.
Secretary Rumsfeld may also be a useful source of observations
on the prior system -- which gave great power to Henry Kissinger as the
National Security Advisor, (and, in principle, to the elaborate formal
NSC machinery) and which made State very much a junior partner.
this
A particular problem with the more formal NSC machinery is
that it puts heavy decands on the time of the senior Defense Department
representative. (It was chiefly to fill that role that a second Deputy
was created at Defense.)
2. Participation in Defense Program and Budget Decisions by
Other Agencies
An issue never successfully addressed under either of the
Nixon-Ford/Kissinger systems has been affording other agencies --
notably State, ACDA, and 0MB -- a meaningful role in defense program
and budget decisions. The Defense Program Review Committee (DPRC) was
set up to perform this function within the NSC structure. It is com-
posed of senior Defense Department, State Department, Treasury and OMB
officials, and is formally responsible for relating defense programs
and resource requirements to overall national priorities, foreign
policies, and the federal budget.
The DPRC was given a difficult mission that was complicated
by DOD resistance and Nixon and Kissinger's unwillingness to confront
DoD on weapons issues. As a consequence, in the words of Secretary
Kissinger, review of total defense policy and requirements has "not
been distinguished," and the DPRC has fallen into disuse.
4
We suggest you ask Rumsfeld's views on how to have adequate
Presidential and foreign policy participation in defense budget and policy
formation without interfering with the Secretary's authority to
manage the Department.
B. DOD ORGANIZATION AND MANAGEMENT
There are some internal DOD organization and management issues
that you may want to díscuss with Rumsfeld, either because of their
intrinsic importance or because they affect decisions about the quali-
ties needed by some high-level Defense appointees. Moreover, Rumsfeld
has reportedly spent a fair amount of time planning how he would have
organized the Department if Ford had won the election -- so he may have
useful ideas on this subject.
1. Centralization vs. Decentralization
Office of the Sec/Def
McNamara centralized DoD decision-making in OSD. Laird
sought to reverse this process, and from the outset downplayed the OSD/
Systems Analysis role in budget and weapon systems decisions. In part,
Laird's decentralization was an indirect result of the National Security
Council system. The single Deputy Secretary (Packard) was chosen to
"manage the building" and particularly to concentrate on procurement
issues, but be found that much of his time was taken by the preparation
for, and the meetings of, the numerous NSC senior-level committees.
This development, combined with Laird's concentration on a few important
issues (Vietnam, the All-Volunteer Force), served to decentralize
management of the Department perhaps even more than Laird and Packard
intended. The result was that the military Services themselves had de
facto authority to make decisions in such areas as weapon development
5
and procurement relatively unchecked by civilian authority. Rumsfeld
actions, reducing further the OSD staff has continued the trend.
In our opinion, given the nature of interservice rivalries,
coherent defense strategy and force structures are unlikely to be achieved on a
decentralized basis. Normally, the partisanship of the civilian Ser-
vice Secretaries and their staffs who have managed the Services has
served further to exacerbate the problem inherent in decentralization.
On the other hand, the degree of centralization adopted by McNamara also
had its disadvantages -- the massive detail to be dealt with at the top
and the ill-will and resistance generated among the Uniformed Services.
Some questions you may want to raise with Rumsfeld in this
area are:
--
What are the strengths and weaknesses of
centralized management of Defense? What have
been the difficulties he has faced by having a
decentralized system?
-- What are the major institutional barriers to a
Secretary establishing effective control of the
Department? Would Civil Service reform, for
example, be an important step in improving
civilian staff and in reducing the need to rely
on the Uniformed Services?
-- What orgaňizational changes, if any, are needed
at the senior level in the Office of the Secre-
tary of Defense? Are two Deputies desirable?
Should there be more? Fewer?
6
2. The Joint Chiefs of Staff
The Joint Chiefs both direct operations of U. S. Forces:
and make recommendations on force structure and policy (e.g, SALT).
Most of the problems arise in their latter role. They are frequently
said to proceed by log-rolling and to recommend either the highest
common denominator (in. force structure) of the vaguest one (in policy).
It might be useful to ask Rumsfeld what he thinks about the
quality of advice from the Joint Chiefs in these latter areas and how
it could be improved. For example:
-- What proposals have the Chiefs made for chang-
ing the deployments of the existing force
structure? Have they intelligently addressed
significant changes such as shifting carriers
from the Pacific to the Atlantic, rearming lightly-
armed Asian-oriented divisions to make them suit-
able for the European theater, building mobile
strategic missiles, or modifying the amphibious role
of the Marines? What could be done to encourage
them to be innovative and free of service bias?
-- Would it be useful to consider having the promotions
of those assigned to the Joint Staff made by that
staff rather than their individual Services? (This
is often characterized by critics as a step toward a
General Staff system).
3. Criteria for a Secretary of Defense
Both as a courtesy, and because of his experience, you
7
may want to ask Runsfeld's views on what kind of person you should
be looking for as Secretary and for other top DoD jobs. For example,
how important are business skills?
Brior expertise on defense policy?
Congressional and/or political experience? You might also ask about
"combinations" of qualities in the top positions, e.g., the need for
a "business manager deputy with a "policy" Secretary. What qualities
are needed for the Service Secretaries?
c. Intelligence Community Organization
1. Role of the Director of Central Intelligence (DCI)
The Director has general responsibility under the 1947 Na-
tional Security Act to coordinate the overall activities of the intel-
ligence community. The Secretary of Defense, however, retains authoriity
for allocating over 80% of the intelligence budget on the asserted
ground that the Military Services need to retain control of intelligence
activities in peacetime to prepare for wartime operations.
This leaves the DCI to try to rationalize intelligence
activities without having the authority to manage all intelligence col-
lection programs, to task the other intelligence agencies, or to direct
the allocation of all intelligence resources. The DCI must depend on his
personal relationship with the President and his role as Director of the
CIA to carry out his coordination responsibilities. However, the DCI
has historically not been able to insure overall efficiency in intelli-
gence operations or to avoid unnecessary duplication and waste. Moreover,
the DCI has often been viewed by other members of the intelligence com-
munity, particularly DoD, as a "biased" coordinator given his role as
Director of CIA.
8
We suggest you ask Secretary Rumsfeld:
Should the DCI be given greater responsibility
for tasking intelligence operations and allocating
intelligence budget resources?
-- Should the DCI be separated from his role as
Director of the Agency?
2. Defense Intelligence Organization
Defense intelligence operations serve the Secretary of
Defense while at the same time supplying the Uniformed Services with
intelligence necessary for their military operations. A new Deputy
Secretary has been established with special responsibility for intel-
ligence, but little seens to have been done to reduce duplication and
waste. The Military Services continue to resist any effort to central-
ize intelligence operations allegedly for fear of downgrading their
wartime combat intelligence capabilities. The Defense Intelligence
Agency (DIA) continues to serve two masters, the Secretary of Defense
and the Joint Chiefs of Staff. As a consequence, DIA does not effect-
ively coordinate defense intelligence activities and has not replaced
the intelligence operations of the separate military services. DIA has
been accused of perpetuating the very faults it was created in 1961 to
avoid -- duplication and inefficiency.
At issue in what degree of centralization of DoD intelli-
gence activities is needed under the Secretary of Defehse.
We suggest that you ask Secretary Rumsfeld:
- What should happen to DIA?
9
1 Should DIA be established as part of the Office of the Secre-
tary of Defense and a new small intelligence staff be created
to serve the Chairman of the Joint Chiefs of Staff?
3. Objective National Intelligence
The primary purpose of the U. S. intelligence organizations
is to provide objective national intelligence for the President and other
members of the NSC. In the past, NIEs were reviewed by a Board of senior
government officials and scholars assisted by their own staff to
insure that the DCI's NIEs were objective and independent of depart-
mental bias. Today, the DCI's staff of National Intelligence Officers
coordinate the drafting of the National Intelligence Estimates (NIEs)
with the rest of the intelligence community (including analysťs in CIA,
the Military Services, DIA, and the State Department's Burcau of Intel-
ligence and Research). This solution, however, has raised questions
about the objectivity of the NIES, and it has been suggested that CIA
has its own set of institutional biases which sometimes produce high,
and sometimes low, estimates.
We suggest you ask Secretary Rumsfeld:
- What is his assessment of the quality and objecti-
vity of the NIEs?
- Should responsibility for producing the NIEs be
removed from CIA? Should responsibility be lodged
again in an independent Board of senior advisers?
Should the DCI appoint a new Deputy for Analysis
with responsibility for insuring that all the views
of the intelligence community ira included in the
NIEs?
10
D. Military Assistant In The White House
Why downgrated ?
Traditionally, the Military Assistant in the White House has
been a general officer, but Secretary Rumsfeld recently downgraded the
position to a colonel strictly on the ground that the tasks were admini-
strative, e-g-, arranging ceremonial visits and scheduling aircraft.
Apparently, in the past, the job included more substantive responsibilities
which are now handled by the NSC staff, and was thought by some to be a
potential alternative channel between the unformed military services, and
the President. You might ask Rumsfeld about the reasons for the change.
II. SUBSTANTIVE ISSUES
A. Pending Decisions
There have been press reports of efforts to accelerate Defense
decisions to lock up issues before January 20. Areas where such changes
have been made include cruise missiles, shipbuilding, a new ICBM ("MX"),
some arms. sales, and some base negotiations. The Defense Transition
Group has been given a long list of decisions likely to be required
soon after January 20, which includes most of the items mentioned in
the press. In general, you should emphasize that you recognize the
need for the Defense Department to continue to operate during the
transition, but that you want to be kept informed - through your trans-
ition people and, later, your new appointees. We suggest you ask
Rumsfeld directly what major decisions he expects to make prior to
January 20.
B. Defense Budget
The budget for the current year (FY 77, which began October 1) is
$112 billion. The budget to be submitted by the Ford Administration in
11
January for FY 78 probably will total $10 to $15 billion more. It will
be several weeks before a final figure is determined -- after final
decisions within DoD and the White House. Secretary Rumsfeld is likely
to raise the issue, at least to give you a status report.
Last January, DoD forecast that its FY 78 budget needs would
be about $120 billion based on its 5-year program and anticipated
inflation. It now appears that Defense will propose to President Ford
to increase that sum by about $7 billion. Several reasons are cited:
(1) the growing Soviet threat; (2) Congressional actions and omissions;
and (3) changed inflation assumptions. We understand that the current
state of play on the budget is as follows:
- The Services requested $133 billion, and the DoD budget
"scrub" has reduced it to about $127 billion.
-- Rumsfeld and the Service Secretaries will review the
budget this week to make final decisions -- this could
reduce or increase the total by $1 billion or so.
-- The OMB Staff has identified further possible cuts
totalling over $10 billion.
-- The Ford Administration continues to want to be able to
present a program showing a balanced budget by FY 79 --
thus it is likely that efforts will be made to hold the
DoD budget to around $125 billion.
In short, the Defense budget is still very much in a state
of flux.
Among the budget related issues that might arise are as follows:
1. B-1 Bomber. The decision to proceed with full scale
production would require about $1.5 billion in FY 78 funds. Defense will
12
address this issue in the next few weeks, although by statute there
will be an opportunity to modify this decision after January 20. There
is a very recent press report of an agreement between the Air Force and
the contractor to avoid a final decision on the B-1 production until
May 1. The probable reason is a judgment that more time increases the
chance you will approve production.
2. Other Weapons. Decisions are also imminent on a new
Army Tank, new Air Force ICBM ("MX"). nuclear strike cruiser, and the
cruise missile -- a Navy and Air Force version or the Air Force version
alone.
3. Navy Shipbuilding. This is the largest single area of
procurement spending and one where sharp differences exist among the
Navy, Admiral Rickover and other nuclear power advocates, and critics
calling for re-direction toward smaller, cheaper ships.
If Rumsfeld raises budget issues, we suggest you press him for
alternate budgets, to get a sense of the differences between the level
requested by the Services ($133 billion or so) and the lowest OMB
alternative ($115 billion or so). Further, you should know that OMB
has not yet shared with the OMB transition group information on DoD
budget requests and possible OMB suggestions for reduction. The DoD
transition group has not yet faced this issue but it would be helpful
if you impressed upon Rumsfeld your desire that your transition teams
have a sound basis for understanding budget proposals - in order that
they, you, and the Secretary can be prepared to give alternative choices
when you take office.
13
C. Briefings. Sec. Rumsfeld will offer to provide you with a
series of briefings. One you must have not later than the early days
of your Presidency. It concerns the Strategic Integrated Operating
Plan (SIOP) and deals with Presidential command and the targeting and
exchanges in a nuclear war.
At least one other would be useful to have promptly, a demon-
stration of the National Military Command Center (NMCC), which is in
the Pentagon.
We believe that the site for these briefings is of some symbolic
importance. The SIOP briefing concerns your role as Commander-in-Chief.
Since you will not exercise that role in the Pentagon but from the White
House, and to emphasize the principle of civilian control, we believe
you should have this briefing at your location, either in Plains or
later in the Situation Room in the White House. However, we believe it
would be extremely helpful to your relations with the military estab-
lishment if you paid a visit to the Pentagon before you become President
and must deal with Defense decisions. Accordingly, we recommend that
you schedule time to do this and receive the NMCC briefing which would
last about an hour. You could include also a short briefing on the
structure and deployment of U.S. forces (less than 1/2 hour) and, if you
wished, an informal lunch with the Sec/Def and the Joint Chiefs. You
would gain important goodwill from these gestures.
D. NATO
NATO is an area of particular interest to Secretary Rumsfeld
since he was Ambassador to NATO for two years. Given this, it may be
useful to request his views on key NATO questions:
14
-- The status of programs to enhance U.S. combat power in
Europe, including equipment modernization and shifting
manpower from support to combat units.
-- The adequacy of NATO's war planning with regard to the
ability to meet a major Warsaw Pact attack with only
limited warning (long vs. short war controversy). You
might ask specifically about studies made of alternative
strategies, when, by whom and with what findings.
-- The implications of the move toward a "short-war"
?
strategy for U.S. force structure -- especially the Navy.
-- Status and prognosis for NATO Allies efforts to improve
the combat effectiveness of their forces, and, more
generally, to sustain their defense efforts in the next
decade.
E. Other Issues Sec Rumsfeld may Raise:
Sec Runsfeld has, we understand, been briefed on a variety of
other current issues in preparation for your meeting. They include:
1. The Military Balance: Net Assessment
Sec Rumsfeld may give you a "geo-strategic" briefing, covering
a broad range of issues -- presenting the Department's current conclusions
on the threat, the balance of forces, and the international political and
military situation. On the whole, it would be likely to be fairly
pessimistic in tone and conclusions. Rather than being drawn into the
substantence of these questions, we suggest you emphasize:
-- Your determination to base defense policy on a realistic
and careful assessment of the threat and our capability (and
our allies') to meet threats to our vital interests.
15
-- Your interest in knowing not only conclusions, but the
data, judgments, sources of information and uncertainties
involved in the process.
- Your desire that your transition people, and appointees
as named, have the fullest possible access to work done in
this area, both at DOD and on an interagency basis.
2. Foreign Arms Sales. The DOD General Counsel is apparently
conducting an investigation into management controls and possible
corruption in this area. In addition, the Navy is well along in negot-
iating with Iran a major co-production agreement for land-based F-18
aircraft.
3. Shipbuilding Claims. There are pending before the Department
and in litigation claims -- approching $2 billion -- by shipbuilding
companies for compensation for cost escalation, and other contract dis-
putes on Navy projects. The companies involved include Newport News
Shipbuilding (aircraft carriers) and General Dynamics (submarines)
and Litton (LHAs and destroyers) -- each claim totalling several hundred
million dollars. Newport News has threatened to halt work on Navy
projects if its claims aren't paid. The issue has important impli-
cations for the future of Naval construction, particularly of large
nuclear-powered surface ships, and the relative roles of private and
U.S. naval shipyards.
4. Tank Decision. The choice of a new main battle tank is the
principal current ground force equipment modernization issue. Both
Chrysler and GM produced prototypes. The Germans have also produced
a tank with a larger (120m) gun than the 105mm mounted on the U.S.
tanks. The U.S. agreed to adopt the German tank if it proved better
16
than U.S. models. As a gesture to NATO standardization, in July the
Army said it would explore mounting the German gun on the U.S. tank,
and the Germans agreed to consider using the Chrysler engine. The
Army recently announced its choice of the Chrysler tank as the U.S.
candidate. The issue is complex involving questions of costs, NATO
standardization, domestic politics and economics, and military
efficiency. For example, the decision is likely to be seen as a
symbol of U.S. seriousness about standardization, but the Army is
unenthusiastic about attempting to incorporate the German gun on the
U.S. tank at this late date.
5. SALT
If Secretary Rumsfeld raises SALT, we suggest that you dis-
cuss with him his views and those of the JCS. He will probably
argue that the U.S. should not rush into compromises on these tricky
issues of Backfire and cruise missiles and that the U.S. needs to hold
off signing any agreement until the Soviets make major concessions.
[From your briefing memo for Secretary Kissinger, the
following points on SALT are provided as background,]
The SALT negotiations are currently stalled over the
specific issues of whether the new Soviet Backfire bomber should be
counted as a strategic launcher and whether long-range cruise missiles
or the platforms which carry them should be counted against the number
of strategic launchers and/or the number of MIRV launchers. The U.S.
proposal in January included:
-- Limits on the range of cruise missiles to 2400
kilometers. Heavy bombers carrying cruise missiles of
17
more than 600 kilometers would count against the
1320 ceiling on MIRV launchers:
-- Ban on submarine launched cruise missiles of over
600 kilometers;
-- Restrictions on cruise missiles on surface ships to
a certain number;
-- Limits on the number of Backfire bombers to around
400 in connection with a reduction in Vladivostok
2400 level by around 200.
Following a Soviet response which rejected any "explicit"
ceiling on Backfire and a Soviet proposal for a ban on long-range
cruise missiles on surface ships, the Defense Department raised a series
of objections to the overall U.S. position. Specifically, Secretary
Rumsfeld and the Director of ACDA argued that the U.S. should work for
a Vladivostok agreement which included limits only on air-launched
cruise missiles and for an "interim" agreement on a number of "theater
strategic systems" including the Backfire bomber, sea-launched cruise
missiles, land-launched cruise missiles, and the new Soviet SS-20 (mobile)
missile. Since then the Soviets have rejected any interim or partial
solutions, most recently at the General Assembly meetings in New York
A separate SALT issue Secretary Rumsfeld may raise is the
question of whether mobile missiles should be included within the
Vladivostok agreement. On the table in Geneva is a Soviet proposal to
ban deployment of land mobile missiles through 1985, but not to restrict
future R&D. Secretary Runsfeld has consistently opposed any ban on
mobile missiles in SALT on the grounds that it would be unwise to con-
strain future deployments of the U.S. MX mobile missiles.
18
Suggestions of Senior Advisors (in the order of contact)
(All broadly agreed on the desirability of focusing on organizational
issues affecting early personnel decisions, not details of substantive
policy or net assessment analyses.)
Cy Vance thinks the Secretary should be questioned closely on combat
readiness of our conventional forces with particular emphasis on heavy
equipment within the Army, munitions, flyability of tactical aircraft
and the status of Navy heavy surface vessels. He feels Rumsfeld might
be particularly helpful to you in díscussing both the organization
within DoD and of the NSC system. Vance questions in particular the
desirability of two Deputy Secretaries. He also feels Rumsfeld should
be knowledgeable about readiness and balance of forces in NATO and
believes he should be questioned carefully on the prospects for increased
European contribution to NATO. On the budget, he suggests that you ask
Rumsfeld what issues he would be bringing to you if he were your Secretary
of Defense. Vance feels that reduction in costs in the personnel areas
are probably the major opportunity for budgetary controls in DOD but
questions whether an extended discussion of this with Rumsfeld would, be
useful. In the arms control-SALT area, he feels that you should con-
centrate on questioning Rumsfeld regarding his ideas on BACKFIRE and
cruise missile limitations/verification issues. He noted that the B-1
is an obvious subject for discussion, but questions the usefulness of
concentrating on this subject outside the broader context of net assess-
ment/SALT negotiations. He believes you should raise the question fof
19
the organization of intelligence gathering with particular emphasis on
the authority for tasking. Should the DCI be given greater authority
and budgetary control?
Harold Brown believes you should press Rumsfeld on net assessments and
insofar as possible, the details as to how he gets there, although he
notes that Rumsfeld may not be comfortable in this area. He believes
you should discuss NATO strategy in the context of seeking to learn
how much serious consideration has been given to alternative strategies -
short versus long war and a discussion of the change in logistics and
force structure requirements which would result in a change of a strategy.
He also believes you should have Rumsfeld's assessment of the power
balances in the Mid-East and his personal (in contrast to institutional)
evaluation of the situation in Korea as well. Brown also feels that
there are major budgetary opportunities in management of DoD manpower,
but is uncertain as to Rumsfeld's ability to address this question in
any detail. He feels that internal DOD reorganization possibilities
and the organization of the NSC decision-making process are areas where
Rumsfeld's comments might be particularly helpful to you.
Paul Nitze prepared a detailed list of possible questions. He suggested
questions on "Broad Overview" including the nature of threats to the
U.S.; from whom does Rumsfeld feel it is most possible to get balanced
assessments of Soviet doctrine, capabilities and net US-USSR assessments
and
;
and how does he rate the developing strategic, NATO, Naval and Middle
East balances. What does Rumsfeld believe are the most time urgent and
important policy decisions to be faced by the new administration on
120
budget and weapons, manpower policies and organization. How does
Rumsfeld rate the relationship between OSD, the JCS and the Services
on weapons development and acquisition and on operations. How would
Rumsfeld recommend setting up a DoD Policy Planning organization
optimally designed to work with State/CIA/NSC staff to support the
President's foreign policy decisions? What are Rumsfeld's ideas on
how best to strengthen procedures to protect the President's Commander-
in-Chief role? What are his views on issues involving the Congress,
including the possiblity of extending the budget cycle to two years,
Reserve policy, manpower compensation and retirement policies and repeal
of legislation inhibiting efficiency such as Title 8? What are his
views on negotiating with the Soviets on SALT, MBFR, sale of conventional
arms, non-proliferation? What are his views on how best to organize DoD,
including his assessment on the role of two Deputy Secretaries?
Jim Schlesinger thinks you will get little out of the meeting, and that
it will be formal, noting that Rumsfeld is cautious and "pretty cagey."
He thinks you should steer clear of weapon systems and strategic policy
questions and concentrate on questions relating to procedures such as
the NSC system and organizing DoD. He also thinks you should raise
NATO and see if Rumsfeld might be interesting on this area.
Paul Warnke was located at an odd hour and in Australia and the con-
versation was thus brief. He thinks you should try to get Rumsfeld to
assess the SALT positions of each of the Services and different areas
Diefense Engineering
within OSD (ISA, DDR&E) in order to get a sense of institutional biases
even within DoD. He feels you should seek Rumsfeld's views on DoD
organization, with particular reference to there being two Deputy
Secretaries and on the NSC decision making process. He believes
Rumsfeld's views on the Central European balance would be useful and
that he should be questioned closely on the extent to which alternative
deployment patterns and war strategies have been studied. Warnke
suggests that Rumsfeld be asked how he is shaping U.S. forces to deal
with possible contingencies in the Mid-East and Yugoslavia and that he
be questioned carefully about the extent of his present dialogue with
the JCS on responses the U.S. is capable of undertaking and the
plausibility of threats we might make.
22
SECRETARY OF DEFENSE
DONALD H. RUMSFELD
Donald H. Run sfeld was sworn into office as the thirteenth Secretary
of Defense on November 20, 1975. He had been serving as Assistant
to the President of the United States, chief of staff of the White House,
and a member of the Cabinet since September 27, 1974, and had chaired
President Gerald Ford's transition to the Presidency in August, 1974.
Born July 9, 1932, in Chicago, Illinois, he received a B.A. in Politics
from Princeton University in 1954, and served in the United States Navy
as an aviator from 1954 until 1957, and in the Naval Reserve thereafter.
Secretary Rumsfeld bec. me active in government in 1958, serving on
the staffs of two Congressmen. From 1960 to 1962, he was with a
Chicago investment banking firm.
In 1962, he was elected to the U.S. House of Representatives from the
Thirteenth Congressional District of Illinois to serve in the 88th Congress.
He was re-elected in 1964, 1966, and 1968. In Congress, he served on
the Joint Economic Committee, the Committee on Science and Aeronau-
tics, and the Government Operations Committee.
In 1969, during his fourth term, Secretary Rumsfeld resigned his seat
in the House to serve as Director of the Office of Economic Opportunity
and a member of the Cabinet. In October 1971, he became Director of
the Cost of Living Council. In February, 1973, he was appointed United
States Ambassador to the North Atlantic Treaty Organization in Brussels,
Belgium, where he served as the U.S. Permanent Representative on the
North Atlantic Council, the Defense Planning Committee, and the Nuclear
Planning Group.
Secretary Rumsfeld has received honorary degrees from Park College,
Missouri; Lake Forest College, Illinois; and Illinois College, Illinois;
and has been awarded the Opportunities Industrial Center's Executive
Government Award and the Distinguished Eagle Scout Award.
Married in 1954 to the former Joyce Pierson of Wilmette, Illinois, they
have daughters, Valerie and Marcy, ages 20 and 16, and a son, Nicholas,
age 9.
August 6, 1976