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WITHDRAWAL SHEET
Ronald Reagan Library
Collection: CICCONI, JAMES: Files
Archivist: ggc/rfw
[OFFice 3
File Folder: Memos -/Policy Development [1 of 2]
Date: 2/1/99
Box 9112 5
DOCUMENT
SUBJECT/TITLE
DATE
RESTRICTION
NO. AND TYPE
1. Memo
Burleigh Leonard to Edwin Harper, Roger Porter Re:
3/10/83
PS
FmHA Bailout (p5), 5p
sonly
2. Memo
Michael Uhlmann to Edwin Harper Re: Pension
2/28/83
PS
Discrimination, 3p
3. Memo
Edwin Harper to James Baker, Edwin Meese Re:
4/13/83
PS
N.Y. Handicapped Infants Regulation, 1p
as
10/18/00
RESTRICTION CODES
Presidential Records Act [44 U.S.C. 2204(a)]
Freedom of Information Act [5 U.S.C. 552(b)]
P-1 National security classified information [(a)(1) of the PRA].
F-1 National security classified information [(b)(1) of the FOIA].
P-2 Relating to appointment to Federal office [(a)(2) of the PRA].
F-2 Release could disclose internal personnel rules and practices of an agency [(b)(2) of the
P-3 Release would violate a Federal statute [(a)(3) of the PRA).
FOIA].
P.4 Release would disclose trade secrets or confidential commercial or financial information
F-3 Release would violate a Federal statue [(b)(3) of the FOIA].
[(a)(4) of the PRA].
F-4 Release would disclose trade secrets or confidential commercial or financial information
P-5 Release would disclose confidential advice between the President and his advisors, or
[(b)(4) of the FOIA]
between such advisors [(a)(5) of the PRA].
F-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the
P-6 Release would constitute a clearly unwarranted invasion of personal privacy [(a)(6) of
FOIA].
the PRA].
F-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of
the FOIA].
C. Closed in accordance with restrictions contained in donor's deed of gift.
F-8 Release would disclose information concerning the regulation of financial institutions
[(b)(8) of the FOIA].
F-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of
the FOIA].
WITHDRAWAL SHEET
Ronald Reagan Library
Collection: CICCONI, JAMES: Files
Archivist: ggc/rfw
File Folder: Memos - Policy Development [1 of 2]
Date: 2/1/99
Box 9112
DOCUMENT
SUBJECT/TITLE
DATE
RESTRICTION
NO. AND TYPE
1. Memo
Burleigh Leonard to Edwin Harper, Roger Porter Re:
3/10/83
P5
FmHA Bailout (p5), 5p
2. Memo
Michael Uhlmann to Edwin Harper Re: Pension
2/28/83
P5
Discrimination, 3p
3. Memo
Edwin Harper to James Baker, Edwin Meese Re:
4/13/83
P5
N.Y. Handicapped Infants Regulation, 1p
RESTRICTION CODES
Presidential Records Act [44 U.S.C. 2204(a)]
Freedom of Information Act [5 U.S.C. 552(b)]
P-1 National security classified information [(a)(1) of the PRA].
F-1 National security classified information [(b)(1) of the FOIA].
P-2 Relating to appointment to Federal office [(a)(2) of the PRA].
F-2 Release could disclose internal personnel rules and practices of an agency [(b)(2) of the
P-3 Release would violate a Federal statute [(a)(3) of the PRA].
FOIA].
P-4 Release would disclose trade secrets or confidential commercial or financial information
F-3 Release would violate a Federal statue [(b)(3) of the FOIA].
[(a)(4) of the PRA].
F-4 Release would disclose trade secrets or confidential commercial or financial information
P-5 Release would disclose confidential advice between the President and his advisors, or
[(b)(4) of the FOIA].
between such advisors [(a)(5) of the PRA].
F-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the
P-6 Release would constitute a clearly unwarranted invasion of personal privacy ((a)(6) of
FOIA].
the PRA].
F-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of
the FOIA].
C Closed in accordance with restrictions contained in donor's deed of gift.
F-8 Release would disclose information concerning the regulation of financial institutions
[(b)(8) of the FOIA].
F-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of
the FOIA].
for
THE WHITE HOUSE
WASHINGTON
April 5, 1983
MEMORANDUM FOR RICHARD G. DARMAN
FROM:
ROGER B. PORTER
RBP
SUBJECT:
Reauthorization of the Civil Rights Commission
The attached materials, which reached me this morning, con-
cern reauthorizing the Civil Rights Commission. I am informed
that the House Judiciary Committee has introductory hearings
scheduled for Thursday, April 7. Congressman Sensenbrenner,
who is prepared to introduce the legislation for the Administra-
tion, would like to have the bill for introduction prior to
the hearing.
Mike Uhlmann and Mike Horowitz have signed off on the
attached transmittal message, bill, and fact sheet. They
have also provided a copy to the Counsel's Office. Ed Harper
has requested that you circulate this package as soon as
possible.
Attachment
CC: Edwin L. Harper
THE WHITE HOUSE
WASHINGTON
April 1, 1983
MEMORANDUM FOR EDWIN MEESE, III
EDWIN L. HARPER
FROM:
Michael M. Uhlmann
SUBJECT:
Reauthorization of Civil Rights Commission
I. Background.
The Civil Rights Act of 1957 established the Commission as an
agency of limited duration, to expire after producing a final
report to Congress and the President. As the original and
subsequent expiration dates have approached, the Act has been
periodically amended to extend the Commission's life.
Under current law, the Commission will expire at the end of
this fiscal year. The President is on record as supporting
extension.
Don Edwards has stolen a march on us by introducing his own
extension legislation. Markup is scheduled for April 7.
The Commission has forwarded its own proposed extension
legislation to OMB for clearance.
In cooperation with OMB, we have drafted proposed extension
legislation for submission by the President. If it is to
have any impact, it must be forwarded to the Hill no later
than April 5 so that it can be introduced in time for the
markup.
This matter coincides with, and is likely to be subsumed in
the battle to confirm our forthcoming nominations to the
Commission.
II. Issues.
O Length of extension. Our draft proposes a ten year
extension (we had previously contemplated six). The Edwards
bill and the CRC draft both propose a fifteen year
extension.
O Terms of office. Our draft provides for staggered six
year terms, with the President retaining his authority to
nominate replacements at will. The CRC draft would also
establish staggered six year terms, but members could be
removed before their terms expired "for cause" only. Edwards
has announced that he will add a provision addressing this
issue after consulting with civil rights groups. These
groups support either fixed terms or life tenure with removal
only for cause.
O Subpoena authority. Our draft would not change the
Commission's existing authority to subpoena persons or
documents (the Commission is currently authorized to issue
subpoenas within a fifty mile radius of a Commission
hearing). The CRC draft would give the Commission nationwide
subpoena power for documents. Such a provision is likely to
be added to the Edwards bill (although Arthur Flemming has
argued that this is an issue the Commission's supporters had
best not open).
III. Analysis.
This is a key skirmish in the larger battle to confirm our
four impending nominations to the Commission.
The legislative aim of Edwards et al. is to "grandfather in"
the existing Commissioners and substantially increase their
capacity to make mischief. They will attempt to build a
record, in moving their legislation, suggesting that the
Commission must be protected against the Administration's
"onslaughts" so that, when our nominations are made, they can
be characterized as "there they go again".
It is therefore essential that we not allow ourselves to be
placed in the position of reacting against Edwards'
legislation, but in favor of our own.
Edwards' bill has received little, if any, publicity. Our
own legislation (especially in view of the recent subpoena
flap) would probably be widely publicized.
Republicans on the Subcommittee, particularly Sensenbrenner,
are eager to take on the misuse of the Commission by its
current members and staff as a Government financed lobby for
the Left. They have, for example, added Checker Finn to
the witnesses who will appear on April 7. An Administration
bill (which we would expect Sensenbrenner to introduce in the
House) would enable them to emphasize that while they are
critical of the Commission's abuses, they are in favor of the
Commission itself.
Recommendations:
O That the President forward the attached legislation to the
Hill.
O That we immediately alert Sensenbrenner and other key
allies of its contents.
O That we retain flexibility to make changes in our
legislation in response to changing circumstances (e.g., if
our four nominees are confirmed, the position of Edwards
regarding issues such as lifetime tenure and removal for
cause would change).
O We should take steps now to assure that the Senate
Republican leadership recognizes the importance of all four
of our nominees to the Commission, and is prepared to do
battle for them.
Attached are drafts of (1) a transmittal message; (2) the
bill itself; (3) a section-by-section analysis of the bill;
and (4) a fact sheet.
TO THE CONGRESS OF THE UNITED STATES:
I am transmitting herewith the "Civil Rights Commission
Reauthorization Act of 1983".
We Americans have come to share a vision of the nation we
want to be: A nation in which sex, race, religion, color,
national origin, age, or condition of disability do not
determine an individual's worth--or where he or she can
work, study, or live. We can be justly proud both of the
progress we have made toward realizing that ideal--and of our
willingness to recognize that progress remains to be made.
In my State of the Union Address on January 25 of this year,
I emphasized the importance of the role the Commission can
play in assuring that we, as a nation, keep our statutory
commitments to fairness and equity for all Americans--and the
necessity to assure that the Commission is not allowed to
expire, as current law provides, at the end of 1983. In
recognition of that importance, the legislation I am
transmitting for your consideration would continue the
Commission's important work through 1993.
The ten year extension I propose today would be the longest
in the Commission's history. However, I believe it is
necessary to assure the continuity recuired for the effective
pursuit of the Commission's mission, while preserving the
original Congressional intent that the Commission have a
specified purpose and duration.
In addition, I am proposing that future members of the
Commission be appointed for specified terms, as is currently
the case with the Equal Employment Opportunity Commission and
similar agencies. This will assure that the Commission's
membership is reviewed at the specified intervals, promote
continuity and provide for the regular introduction of new
perspectives to the Commission's work.
Finally, I am proposing that the Commission's current
authorities and procedures be continued intact. The existing
statutory provisions have, since the Commission's founding,
enabled the Commission to fulfill its unique function while
avoiding duplication of activities performed by the EEOC,
Department of Justice, and other line agencies.
I ask that this legislation be adopted quickly to avoid any
uncertainty regarding the Commission's status and any
resulting disruption in its important work.
THE WHITE HOUSE
April
,1983
A BILL
To amend the Civil Rights Act of 1957 to extend the life of
the Civil Rights Commission and for other purposes.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled, That this
Act may be cited as the "Civil Rights Commission
Reauthorization Act of 1983".
ESTABLISHMENT OF TERMS FOR MEMBERS OF THE COMMISSION
Sec. 2. Section 101 of the Civil Rights Act of 1957
(42 U.S.C. 1975) is amended to add the following at the
conclusion of the section:
"(f) Members of the Commision will be appointed for a
term of six years except for the members first appointed
pursuant to this Act:
(i) Two of such members, not affiliated with the same
political party, shall be appointed for a term of two years;
(ii) Two of such members, not affiliated with the same
political party, shall be appointed for a term of four years;
(iii) Two of such members, not affiliated with the
same political party, shall be appointed for a term of six
years.
Provided that: Those members of the Commission who, on the
effective date of this Act, are serving as members pursuant
to appointments made under prior authority shall continue to
serve until successors are nominated by the President and
confirmed by the Senate."
"(g) (i) A member of the Commission may continue to
serve on the Commission after the expiration of the member's
term until a successor has been nominated by the President
and confirmed by the Senate.
(ii) Persons appointed to fill vacancies occurring
other than by the expiration of a term of office shall be
appointed only for the unexpired term of the member they
succeed."
EXTENDING THE LIFE OF THE COMMISSION
Sec. 3. Section 104 (c) of the Civil Rights Act of 1957
(42 U.S.C. 1975c (c)) is amended by striking out "1983" and
inserting "1993" in lieu thereof.
AUTHORIZATION OF APPROPRIATIONS
Sec. 4. Section 106 of the Civil Rights Act of 1957 (42
U.S.C. 1975e.) is amended to read as follows:
"There are authorized to be appropriated $12,180,000 to carry
out the provisions of this chapter for the fiscal year ending
September 30, 1984, and such sums as may be necessary for
each of the following nine fiscal years."
Section by Section Analysis
Section 1 gives the short title of the proposed legislation,
"Civil Rights Commission Reauthorization Act of 1982".
ESTABLISHMENT OF TERMS FOR MEMBERS OF THE COMMISSION
Section 2 would amend section 101 of the Civil Rights Act of
1957 (42 U.S.C. 1975) to add two new subsection at the
conclusion of the section, (f) and (g). New subsection (f)
would provide for staggered terms of six years for the
members of the Commission. To initiate the staggered terms,
the first six appointments pursuant to this legislation would
be made in three pairs. One member pair would be appointed
to two year terms, another to four year terms, and a third
member pair to six year terms. Each pair of appointments
would be of persons "not affiliated with the same political
party" (the Civil Rights Act of 1957 requires that no more
than 3 members of the Commission be members of the same
political party). Thereafter, all appointments would be to
six year terms (or, as provided in new subsection (g), where
an appointee is succeeding or replacing a member whose term
has not expired, to the remainder of the term in question).
Persons serving as members of the Commission upon enactment
of this proposed legislation would continue to serve until
successors are nominated by the President and confirmed by
the Senate. New subsection (g) would provide that members
may continue to serve after the expiration of their terms of
office until a successor has taken office as a member of the
Commission.
EXTENDING THE LIFE OF THE COMMISSION
Section 3 would extend the life of the Commission by ten
years by amending Section 104(c) of the Civil Rights Act of
1957 (42 U.S.C. 1975c(c) ) to provide that the Commission will
submit its final report to Congress and the President in 1993
rather than 1983.
AUTHORIZATION OF APPROPRIATIONS
Section 4 would amend Section 106 of the Civil Rights Act of
1957 (42 U.S.C. 1975e.) to authorize the appropriation of
$12,180,000 for fiscal year 1984 and such sums as may be
necessary for each of the following nine fiscal years. This
period coincides with the period of extension of the
Commission's life in Section 3.
PRESIDENT'S MESSAGE TO CONGRESS TRANSMITTING THE CIVIL RIGHTS
COMMISSION REAUTHORIZATION ACT OF 1983
Summary
Pursuant to his State of the Union Address on January 25, the
President today transmitted to the Congress a bill extending
the life of the Civil Rights Commission. The ten year
extension provided for in the bill would be the longest in
the history of the Commission.
The President's Message reiterated his commitment to making
America " the nation we want to be: A nation in which sex,
race, religion, color, national origin, age, or condition of
disability do not determine an individual's worth--or where
he or she can work, study, or live.' Americans II
can be
justly proud both of the progress we have made toward
realizing that ideal--and of our willingness to recognize
that progress remains to be made". The Civil Rights
Commission, the President emphasized, can play an important
role
"
in assuring that we, as a nation, keep our statutory
commitments to fairness and equity for all Americans.
The President's purpose in proposing an unprecedented ten
year extension is to " assure the continuity required for
the effective pursuit of the Commission's mission--while
preserving the original Congressional intent that the
Commission have a specified purpose and duration".
BACKGROUND
--The Civil Rights Act of 1957 established the Commission as
an agency of limited duration, to expire after producing a
final report to Congress and the President.
--As the original and subsequent expiration dates have
approached, the Act has been periodically amended to extend
the Commission's life.
--Under current law, the Commission will expire at the end of
this fiscal year.
SUMMARY OF PROPOSED LEGISLATION
The "Civil Rights Commission Reauthorization Act of 1983"
would:
-Extend the life of the Commission through Fiscal Year
1993.
--Promote continuity and at the same time bring fresh
perspectives to the Commission by providing that future
members be appointed to specified terms, as is currently the
case with the Equal Employment Opportunity Commission and
similiar agencies.
--Authorize the appropriation of 12,180,000 for the
Commission in FY 1984 and "such sums as may be necessary" in
each of the following nine fiscal years; i.e., through 1993.
--Continue the Commission's current authorities and
procedures intact.
memor
THE WHITE HOUSE
WASHINGTON
MARCH 10, 1983
MEMORANDUM FOR EDWIN L. HARPER
ROGER B. PORTER
FROM:
BURLEIGH LEONARD
SUBJECT:
FmHA Bailout Legislation
The Senate Agriculture Committee and a House Agriculture sub-
committee have reported legislation providing relief for FmHA
borrowers. The bills -- S.24 and H.R.1190 -- are on fast
tracks. There is very good reason to believe that some variation
of a FmHA bailout bill could reach the President's desk.
S.24. originally introduced by Senator Huddleston, would:
1. require the Secretary of Agriculture, during the period
beginning on the date of enactment of the bill and end-
ing September 30, 1983, to permit family farmers with
economic emergency loans or FmHA farm loans, on request,
to defer repayment of the loans, if the borrower can
show to the satisfaction of the Secretary that he has
followed good management practices, is temporarily un-
able to continue making payments on the loan due to
circumstances beyond his control, and has a reasonable
chance of repayment of the loan after the deferral;
2. require the Secretary, after a deferral period ends, to
make available to the borrower consolidation, reschedu-
ling, or reamortization of the deferred loan at an
interest rate not in excess of the interest rate on the
originial loan. (estimated costs: depending on length
of deferral and level of participation, Treasury would
have to borrow $0-6 billion; long-term permanent cost:
$0-2.4 billion);
3. establish, that for any FmHA farm loan deferred, consol-
idated, rescheduled, or reamortized by the Secretary,
the interest rate for the remaining balance and term of
the original loan cannot exceed the rate of interest for
the original loan (estimated costs: $200 million);
4. raise the loan limits for FmHA farm operating loans as
follows--
2
(a) no insured loan could be made to a farmer that
would cause the farmer's total outstanding farm oper-
ating loans to exceed $300,000 (under current law, the
figure is $100,000); and
(b) no guaranteed loan could be made to a farmer that
would cause the farmer's total outstanding farm oper-
ating loans to exceed $400,000 (under current law, the
figure is $200,000) (no cost).
5. add $200 million to the amount authorized for insured
farm operating loans in fiscal year 1983, the additional
funds to be reserved for new borrowers (farmers who have
not received any operating credit from the Farmers Home
Administration since September 30, 1981) (estimated
costs: $200 million in additional lending authority);
6. require that not less than 20% of the amounts authorized
for insured farm ownership and farm operating loans in
fiscal year 1983 be made available for the low-income,
limited-resource farmer program, under which farmers who
qualify for the program receive loans at a reduced rate
of interest (estimated costs: $5 million);
7. extend the discretionary economic emergency loan program
through September 30, 1984, and provide an additional
$600 million worth of insured economic emergency loans
in fiscal year 1983. (estimated costs: $600 million in
additional lending authority; however, because program
is discretionary there could be no cost if we can with-
stand pressure to issue loans).
H.R. 1190, introduced by Congressman Ed Jones and co-sponsored by
Congressman Tom Coleman, would:
1. require the Secretary of Agriculture, during the period
beginning with the date of enactment of the bill and
ending September 30, 1984, to permit borrowers with
economic emergency loans or FmHA farm loans, on request,
to defer repayment of the loans for a one-year period
beginning on the date the deferral is approved, if the
borrower can show that he has followed good management
practices, is unable to continue making payments on the
loan due to circumstances beyond his control, and has a
reasonable chance to repay the loan after the deferral;
2. require the Secretary, after a deferral period ends, to
make available to the borrower consolidation, reschedul-
ing, or reamortization of the deferred loan at an inter-
est rate not in excess of the interest rate on the orig-
inal loan. (estimated costs: $4-6 billion in short-
term Treasury borrowing depending on participation rate;
long-term permanent cost $1.2-2.3 billion);
3
3. increase from seven to fifteen years the time over which
the FmHA may reschedule and reamortize its operating
loans and provide interest rates on such extended loans
at the lower of the current or original rate (estimated
costs: $200 million);
4. increase the limit on FmHA-insured operating loans from
$100,000 to $200,000 and increase the limit on FmHA-
guaranteed operating loans from $200,000 to $400,000 (no
cost).
5. provide an additional $200 million in FmHA-insured oper-
ating loans in fiscal year 1983, the additional funds to
be reserved for borrowers who have not received loans
from FmHA since September 30, 1981 (estimated costs:
$200 million in additional lending authority);
6. require that at least 20% of FmHA's farm operating and
farm ownership loans in fiscal year 1983 be made to
borrowers who qualify for reduced interest rates for
low-income, limited-resource farmers (estimated costs:
$5 million);
7. mandate operation of the economic emergency loan pro-
gram, and provide an additional $600 million worth of
insured economic emergency loans (estimated costs: $600
million in additional lending authority);
8. allow farmers who got disaster emergency loans after
December 15, 1979, to get follow-up loans during fiscal
years 1983-1984 (estimated costs: $1.2 billion in addi-
tional lending authority per fiscal year; however no
permanent cost as these loans are made at cost of money
and repaid);
9. establish that eligibility for disaster emergency loans
will depend on losses suffered by the individual appli-
cant, not on whether the Secretary of Agriculture has
designated the producer's home county as eligible for
disaster loans (estimated costs: would result in con-
siderable administrative costs and could increase the
number of disaster emergency loans made).
10. move authority to issue loan guarantees from FmHA county
officers into a special Guaranteed Farm Loan Program
unit set up by FmHA in each state (small administrative
cost).
Neither of these bills merits the Administration's out-front
support. However, there are differences between the two measures
that need to be appreciated.
S.24's loan payment deferral provision applies for a shorter
4
period of time and gives the Secretary discretion to set the
length of an individual's deferral. Under a strict interpreta-
tion of the provision, the deferral period could be limited to
such an extent that few, if any, additional federal outlays would
be necessary. FmHA lawyers warn, however, that such a strict
interpretation may be difficult to defend before the courts,
unless more explicit directives were provided in the legislative
history of S.24. I have encouraged USDA to explore with friendly
Senators the possibility of securing such directives.
S.24 does not mandate the FmHA economic emergency loan program
as does H.R. 1190. It merely provides the Secretary of
Agriculture with discretionary authority to make such loans. The
economic emergency loan program is a poor program. It was de-
signed to address the credit needs of larger operators who could
not qualify for the regular FmHA farm loans. By administratively
modifying the definition of family farm in conjunction with an
appropriate increase in the ceilings on FmHA insured and guaran-
teed farm loans (such as those provided in both S.24 and
H.R. 1190), the Administration could accommodate larger farmers
and thus neutralize the constituency for the economic emergency
loan program. If the economic emergency loan program is manda-
ted, we could be required to permit private lenders to dump any-
where between $600 million and $1.2 billion of low quality loans
on FmHA.
It should be noted that a case is pending in a federal district
court, the result of which could force FmHA to issue an
additional $600 million in economic emergency loans.
Finally, S.24 refrains from extending subsequent loan eligibility
for those who received disaster emergency loans after December
15, 1979, thereby avoiding the need to provide an extra $1.2
billion in lending authority in each of fiscal years 1983 and
1984. Furthermore, S.24 does not require that the disaster
emergency loan progrm be administered on an individual evaluation
basis. Such a requirement, as provided in H. R. 1190, would impose
an administrative burden on FmHA that could bring its program
operations to a standstill.
There are indications that Congress is anxious to ram an FmHA
bailout proposal into law. Secretary Block has sought to blunt
such enthusiasm by sending to the Hill a letter which outlines
the grounds upon which he would recommend a veto to the
President. The letter explains that anyone of four provisions
would prompt a veto recommendation from the Secretary: mandatory
loan payment deferral; mandatory economic emergency loan program;
subsequent loan eligibility for those who received disaster emer-
gency loans after December 15, 1979; and individual designation
for disaster emergency loans. The letter leaves enough wiggle
room to permit the President to sign FmHA legislation as substan-
tiation of his State of the Union pledge to work with farmers on
a case-by-case basis to get them through hard economic times.
5
I think it will require White House involvement either to pre-
vent any FmHA bailout legislation from getting to the President's
desk or to get an FmHA bill that the President can sign. It may
be wise to get that involvement going now while we still have a
chance to shape events on Capitol Hill. We can ill-afford being
put in the dilemma of choosing between bad and, in this case,
expensive legislation and a strong political constituency, as we
were on the contract sanctity issue.
There are things that could be done to help prevent a veto con-
frontation with Congress on FmHA bailout legislation:
0
Senator Domenici could be prevailed upon to object to
S.24 on budgetary grounds until mid to late April,
giving us enough time to develop support for a substi-
tute similar to legislation introduced by Senator
Cochran. Senator Lugar may be willing to carry the
water for us on the substitute.
O
We could step up efforts to keep H. R. 1190 bottled up in
the House Agriculture Committee. Congressman Madigan to
date has been a real trooper in leading opposition to
the bill. His help should be acknowledged by the White
House and his position should be reinforced in any way
possible.
O
A FmHA supplemental (if it is necessary) could be sent
to the Hill in a timely fashion so as to avoid giving
supporters of S.24 or H.R. 1190 any cause to question
our commitment to FmHA borrowers.
O
Farm groups could be urged by the White House to oppose
FmHA bailout legislation.
O
We could increase public awareness of our efforts to
date to help FmHA borrowers secure needed credit, there-
by countering our image as having no compassion.
My point is that it is not too soon for the legislative strategy
group to map out a course of action on FmHA bailout legislation.
To simply say that we oppose such legislation may not be enough
to stem the tide of support for the legislation.
OPD memos
THE WHITE HOUSE
ASHINGTON
March 29, 1983
MEMORANDUM FOR EDWIN MEESE III
JAMES A. BAKER III
FROM:
ROGER B. PORTER
RBP
SUBJECT:
Conservation PIK
AS requested at this morning's senior staff meeting I
have had our staff look into the Washington Post story that
USDA is considering a program which would give farmers free
surplus grain as an extra incentive to conserve eroding
cropland.
Our inquiries at the Department confirm that USDA is
considering such a program. Since such a program could have
substantial budget implications as well as involve the inter-
est of other departments and agencies this seems like an issue
that merits Cabinet Council consideration.
I have asked Danny Boggs, Executive Secretary of the
Cabinet Council on Food and Agriculture, to discuss this
with Secretary Block and report to me if there is any prob-
lem.
A brief memorandum describing the options currently
under review at USDA on this issue is attached.
Attachment
CC:
David A. Stockman
Craig L. Fuller
Richard G. Darman
Edwin L. Harper
THE WHITE HOUSE
WASHINGTON
MARCH 29, 1983
MEMORANDUM FOR EDWIN L. HARPER
ROGER B. PORTER
FROM:
BURLEIGH LEONARD
BL
SUBJECT:
Conservation PIK
Ward Sinclair's article in the March 29 edition of the Washington
Post accurately indicates that USDA is considering a program
which would give farmers free surplus grain as an extra incentive
to conserve eroding cropland.
While no final proposal has been submitted to the Secretary as of
yet, an intradepartmental task force has been putting together
payment-in-kind conservation options that could be used to
capitalize on the soil conservation opportunities presented by
the PIK production control program.
Most of the acreage to be removed from production under the PIK
program is marginal land with high susceptibility to erosion.
The provisions of the PIK program require that this land be put
into conservation usages - - such as cover crops - - in order to
minimize soil loss due to water and wind erosion while the land
is out of production. With their land already diverted and
provided adequate incentives were available, some farmers could
be encouraged to put their diverted land into long-term
conservation usages such as permanent grass and trees. Other
farmers could be encouraged to terrace their land or put in
grassed waterways so that when their diverted land was put back
into production it would be better protected from soil erosion.
The USDA task force is considering a number of options, including
these approaches:
O
Farmers who agree to permanent conservation programs
for their farms might get federal surplus grain instead
of or as part of federal cost-sharing money currently
available under USDA conservation programs;
O
Farmers already in the PIK program might be offered a
bonus of 2 or 3 percent more in surplus commodities if
they agree to carry out a permanent conservation plan.
The task force envisions a ceiling on the in-kind conservation
payments of $250 million worth of commodities, as compared to the
roughly $8 billion worth of commodities distributed under PIK.
out of the farmer-held reserve in the
USDA in order would to have have to access bid commodities to sufficient commodities for use
conservation program.
Cochran has introduced legislation, S. 843, which
Senator authority for cash or in-kind payments to encourage
provides farmers to use conservation practices. Given the questions being
raised about the Administration's commitment to conservation
programs (due primarily to significant budget cuts in USDA's
conservation programs), USDA probably would want to support such
legislation should it decide to pursue this son-of-PIK
conservation approach.
This subject has not been discussed with OMB nor has it been
inserted into the cabinet council process. It is regarded by
USDA as an "in-house" matter.
memos
THE WHITE HOUSE
WASHINGTON
March 28, 1983
MEMORANDUM FOR JAMES A. BAKER, III
EDWIN MEESE III
MICHAEL K. DEAVER
CRAIG FULLER
DAVE GERGEN
FAITH WHITTLESEY
FROM:
EDWIN L. HARPER
SUBJECT:
Black Appointees
Mel Bradley has been meeting with black appointees in the
Administration and has prepared the first summary report on these
meetings. I think you may find some of his conclusions of
particular interest.
Mel will continue to hold these meetings and report back from
time to time. If there are specific topics that you would like
him to test, feel free to contact him directly.
Attachment
MEMORANDUM
THE WHITE HOUSE
WASHINGTON
March 23, 1983
FOR:
ED HARPER
FROM: MEL BRADLE)
SUBJ: Meeting With Black Appointees
On March 4 and March 14, L completed the first round of meetings
with Black political appointees who serve in full time positions
at significant levels within the Administration! The primary
purpose of the meetings was to seek to establish a method of
keeping them informed so that they might better serve the
President. Perhaps more than any others within the
Administration, Blacks, if kept abreast of actual developments,
can do more as a group to dispel the myth that the Administration
is pro-rich, anti-Black and is not first and foremost about the
business of creating conditions in which all not just a few
Americans can prosper. This is true largely because Black
appointees tend to be in constant contact with one or more of the
constituencies to whom it is important to correct the
misperception. In addition to performing their regular
responsibilities, Black appointees tend to spend a considerable
amount of time speaking to the concerns of potential as well as
actual friends and supporters and others of the Black community.
We agreed that
(1) Consistent with available time and staff resources 4 would
seek to assist in keeping them abreast of significant and
pertinent policy developments and accomplishments;
(2) We would periodically hold additional informal meetings for
this purpose and for the purpose of their informing each
other of pertinent developments;
(3) They would incorporate the latest information regarding
civil rights accomplishments, accomplishments regarding the
economy, myth dispelling information, etc. in their public
speeches and other public contacts; and
(4) They would provide feedback as to public reaction to this
and other activities of the Administration.
- 2 -
There was outspoken unanimity that we may not be taking advantage
of the potential gains available through a special communications
effort directed to the Black press. The gist of the theory put.
forth was that, unlike the general press, the Black press is
;
eager for all news relevant to Blacks and therefore would tend to
print all, rather than just the negative or sensational.
MEMORANDUM
ford memos
THE WHITE HOUSE
WASHINGTON
February 28, 1983
FOR:
EDWIN L. HARPER
FROM:
MICHAEL M. UHLMANN
SUBJECT:
Legislative Package on Pension Discrimination
You stated last week that you wanted the sex discrimination
insurance package readied for transmission to The Hill by March
8, the timing to coincide with the President's meeting with
Republican Congresswomen,. For the reasons set forth below, I
think it would be ill-advised to transmit legislation at this
time.
There 1S substantial agreement in the CCLP working group for
including the following elements in a legislative proposal:
(1) Equalize pension benefits by prohibiting gender-based
actuarial tables on a prospective basis.
(2) Protect older women by requiring spousal consent before
survivor benefits could be waived.
(3) Protect younger women by lowering to 21 years the age at
which workers must be permitted to participate in a
pension plan (i.e., start earning credits).
(4) Neutralize the adverse consequences of taking maternity
leave by providing that no break in service would occur.
There is no major controversy on the last three items, which have
been incorporated in one form or another in various proposals now
pending on The Hill. By the same token, none of the three is
deemed to be of earth-shaking importance.
The equal-benefits proposal will be controversial, and by
announcing it at this time, chances are far greater that we will
be jeered rather than cheered. Consider:
O
Because our proposal does not address the non-pension
areas of insurance (and we do not now have the
information to make an assessment), it will be criticized
as a pale imitation of H.R. 100, which appears to promise
so much. There is no reason whatsoever for any women's
group to support anything less than H.R. 100 at this
time. Even if some were disposed to say nice things (why,
I do not know), they would be effectively prevented from
doing so by their sister organizations, which in the
spirit of all ideological interest groups would condemn
any departure from the "party line". It must not be
forgotten that the women's organizations compete with one
another for leadership of the movement. That competition
is measured not only in terms of ideological purity, but
in terms of membership and fund-raising. They have far
more to gain in condemning rather than praising our pale
imitation of H.R. 100. In short, proposing legislation
of the sort we have in mind at this point could have
exactly the opposite effect of the one you seek.
The foregoing is a particularly likely outcome because
our prospective solution would be criticized by women's
groups as a "retreat" from our petition in Spirt. Our
memorandum in support of Ms. Spirt did not specifiy the
form of relief required by Title VII, but EEOC
participated below on the question of relief in support
of retroactivity. Women's organizations have
gratuitously assumed that the prospective/retroactive
question has already been settled in their favor. By
contrast, the dominant position within the Administration
is that Manhart is open on this point. In any event,
because our brief in Spirt did not address the issue, we
at least have the benefit of ambiguity at the moment.
Coming out for prospective relief in legislation now
would open us to severe criticism that we are offering
less than what is now available under EEOC regulations
and certain lower court decisions.
Labor, Justice, Treasury, and EEOC strongly concur in this
judgment, and believe we should keep our powder dry for the
time-being. The real debate on H.R. 100 and similar legislation
is only now beginning to heat up. Until recently, it's been
pretty much a case of being for the bill or against "women's
rights". But as more and more females discover what the
elimination of gender distinctions in insurance will do to their
premiums, and as the likes of Mayor Koch weigh in against the
bill's adverse impact on public employee pension funds, the
politics of this issue are going to change, and may change
sharply.
It is yet too early to hazard anything more than a guess, but
a good one is that H.R. 100 as it now stands will not emerge from
Congress. A premature entry onto the battlefield by the
Administration, however, will invite severe criticism from those
who still believe that the bill is alive and well, place us
permanently on the defensive, and make us a convenient scapegoat
if the bill undergoes substantial change for reasons wholly
beyond our control.
Alternative Scenario for March 8
Rather than sending legisltion up now, I would propose the
following script for March 8:
(1) Present to the Congresswomen a detailed summary of our
efforts on behalf of women to date. This would include, but need
not be limited to
-- information on personnel
summary of 50-States Project (they issued their report
last month)
summary of Legal Equity Task Force (this is the
Executive Order drill to review federal statutes and
regulations)
(2) Present a detailed breakdown of the Economic Equity Act,
which shows that the greater part of the original Act has already
been enacted with our support.
(3) Reiteration of the President's concerns on pension
equity, giving more detail than the SOTU, but drawing up short of
announcing a specific package. Bottom line: as we pledged in
testimony last week, we will work with Congress to produce
meaningful legislation this year.
(4) Have the President announce his plans to create a
presidential commission to study and report on the effects of
eliminating gender-based actuarial tables in all forms of
insurance other than pensions. Put the Commission on a short
hook, e.g., six months, and postpone any legislative proposal on
this front until after the Commission reports.
1:30
THE WHITE HOUSE
Today
WASHINGTON
April 14, 1983
TO: JAB III
RE: Infanticide Meeting Today
At 1:30 today, a meeting will be
held to discuss a recent lawsuit
about infanticide. This is a
complex case, and has a number
of pitfalls that were not apparent
when Ed Harper first raised this
the other day in senior staff.
I've attached a memo that Mike
Uhlmann has prepared on the sub-
ject. It discusses some of the
key issues, and explains why our
decision in this case could have
implications beyond the issue of
infanticide alone.
I made sure Fielding was sent
materials on the issue, and left
a message yesterday suggesting
that he look at this carefully.
Sorry I won't be here.
JC
MEMORANDUM
THE WHITE HOUSE
WASHINGTON
April 13, 1983
FOR:
EDWIN L. HARPER
FROM:
MICHAEL M UHLMANN
SUBJECT:
Handicapped Infants Regulation and
Medicare/Medicaid as Federal Financial Assistance
The Problem
Justice and HHS are at an impasse over the issue of whether
Medicare and Medicaid constitute federal financial assistance.
This issue is now presented squarely in litigation against our
handicapped infant regulation in the Southern District of New
York. (In the similar D.C. case pending before Judge Gesell,
plaintiff medical groups did not raise this issue.) The district
judge in New York has set a preliminary injunction hearing for
Monday, and our brief is due Friday. Richard Willard of Justice
believes we can avoid taking a position on this issue in the
brief, but we must be ready with an answer at the hearing on
Monday.
Thus far, we have kept the HHS-DOJ debate over the issue
low-key, to avoid any adverse public flare-ups over the civil
rights implications.
The non-discrimination requirement of Section 504 of the
Rehabilitation Act of 1973 applies to any program or activity
that receives federal financial assistance.
The issue therefore implicates not only the anti-infanticide
regulation, but every federal civil rights scheme that is
triggered by receipt of federal financial assistance: race
discrimination, sex discrimination, handicap discrimination. Any
change in the scope of coverage of this panoply of regulations is
obviously fraught with controversy.
Arguments that Medicare and Medicaid should NOT be considered
federal financial assistance to hospitals (as articulated by
Civil Rights Division of Justice):
Federal Medicaid payments are made to the states, not to
the health care providers; hospitals participating in
Medicaid receive financial assistance not from the
federal government but from the states.
Federal Medicare payments are financial assistance to
elderly patients, not to hospitals.
-2-
-- As with student loans, a federal payment for the
benefit of an individual, which can be used at any
institution the individual chooses, should not bring
the institution under federal control.
-- Medicare is analogous to food stamps, which are not
and should not be considered federal financial
assistance to grocery store chains.
-- Moreover, Medicare is a federal funding program for
the elderly, and a hospital's receipt of Medicare
should not subject the hospital to federal regulation
of its program of health services to infants.
Arguments that Medicare and Medicaid SHOULD be considered
federal financial assistance:
This has been the consistent interpretation of HHS since
the inception of the Medicare/Medicaid program, and has
generally been accepted by hospitals and federal courts.
It is also the position DOJ has taken in litigation as
recently as June 1982, when Baylor Medical Center
objected to HHS investigatory jurisdiction and Justice
filed a brief in federal court saying the institution was
federally assisted because it received Medicare and
Medicaid.
Even though federal Medicaid payments are channeled
through the states, we have generally accepted the
principle that state distribution of federal moneys does
not insulate the recipient institution from federal civil
rights jurisdiction: all our block grants have carried
federal civil rights strings with them.
Politically, we could just as easily be attacked for
trying to deregulate hospitals from civil rights laws as
for trying to deregulate tax-exempt schools in the Bob
Jones case.
Arguments that a hospital should not be covered by the
handicapped infants regulation unless federal funding goes to its
pediatrics ward:
Following the Supreme Court's North Haven decision, we
have taken the position in litigation that only the
specific program or activity receiving federal financial
assistance is covered by civil rights laws.
For example, we have said that federal payments to one
program of a university do not subject all programs of
the university to civil rights coverage.
-3-
Arguments that the entire hospital should be covered if
federal funds go to part of the hospital:
It is not clear that a hospital can be divided into a
"pediatrics program" distinct from other parts of the
hospital, since many types of care are often given within
a single hospital building, administered as a single
program of care for patients.
HHS has considered the entire hospital to be the relevant
program or activity since the 1960s.
The Justice Department brief in the Baylor case follows
the view of the entire hospital as the relevant program
or activity.
The argument against holding Medicare and Medicaid to be
federal assistance has legal and logical merit. The analogy to
food stamps and student loans has merit. However, we have
departed from a thoroughgoing logical approach in this area by
admitting that Pell grants are federal assistance in the Grove
City case.
Analysis
A major complicating factor in this decision is the brief
filed by Justice in the Baylor case. A copy of the Table of
Contents from this brief is attached. However strong our legal
arguments for saying that Medicare and Medicaid payments do not
bring an entire hospital under federal civil rights coverage, we
must be ready to meet the accusation that we are changing our
position.
Politically, we could expect opposition from handicapped
groups, women's groups, civil rights groups, and right to life
groups. Without Medicare/Medicaid as a civil rights handle, a
number of hospitals would drop out of civil rights coverage,
especially with regard to handicap discrimination, since the
Hill-Burton program expired around the time the Rehabilitation
Act was enacted. As for potential political support, we should
consider whether hospitals and medical associations would want to
give public support to an effort that would take many of them out
from federal civil rights coverage.
Recommendation
All deliberations over this issue should involve White
House Counsel's office, since the matter concerns pending
litigation.
-4- - -
O
Convene meeting as soon as possible. Recommended
participants:
-- Fred Fielding
-- Ed Meese, Jim Baker
-- HHS (Heckler, del Real)
-- DOJ (Schmults, Reynolds, Willard)
-- OMB (Horowitz, Clarkson)
-- OPD (Uhlmann, Carleson, Bradley)
U.S.A. V. Boylor Universit Medical Center
TABLE OF CONTENTS
Statement
1
Summary of Argument
4
Argument
5
I. This Court Has Jurisdiction over the Complaint in this
Action
5
II. The United States Has Stated a Claim Upon Which Relief
Can Be Granted
8
A. Funds Received by Baylor Pursuant to Medicaid
and Medicare Constitute "Federal financial
assistance"
9
1. The consistent administrative construction
of the term "Federal financial assistance"
by HHS, as ratified by the case law, provides
for coverage of recipients of Medicaid and
Medicare funds
9
2. The HHS administrative construction of "Federal
financial assistance" is valid, since funds
provided pursuant to the Medicaid and Medicare
programs do not fall within the regulatory
exclusion for "contracts of insurance"
12
a. Medicaid
12
b. Medicare
14
3. The interpretation of "contracts of insurance"
suggested by Baylor is contrary to the intent
of Congress
18
a. The legislative history to Title VI
18
b. The legislative history to the Medicare
Program
21
B. Baylor Is a Recipient of Other Federal Funds
22
Conclusion
23
THE WHITE HOUSE
WASHINGTON
April 13, 1983
MEMORANDUM FOR JAMES A. BAKER, III
EDWIN MEESE III
FROM:
EDWIN L. HARPER
SUBJECT:
New York Handicapped Infants Regulation
Suit Requires Policy Decision
Does federal aid to an individual who accepts that aid in
the context of an institution (e.g. school, college or
hospital) constitute aid to the institution, opening the
institution to a host of federal regulations?
In DOJ's filings in the Grove City and Hillsdale cases,
we have said no it does not. DOJ feels we should take
a similar position in this case.
HHS feels that we should take the opposite position to
preserve the infanticide regulations which it just
issued. HHS finds itself on the side of the American
Life Lobby on this issue. (see the attached telegram)
The brief which the government must file in the NY
infanticide case is an important policy choice.
CC: Fred Fielding
Mike Uhlmann
The Thite House
Handingt:
WHC016(1359) (1-011298A103) PD 04/13/83 1358
ICS IPMWGWJ WSH
1933 APR M PM 2 02
00380 BUWASHINGTON DC 136 04-13 139P EST
PMS HON EDWIN L HARPER
ASST TO THE PRESIDENT
WHITE HOUSE DC
GIVEN THE PRESIDENT'S PERSONAL COMMITMENT TO THE ANTI-
INFANTICIDE REGULATIONS THE ADMINISTRATION WILL HAVE A MAJOR
POLITICAL DISASTER ON ITS HANDS IF ITS JUSTICE DEPARTMENT
CIVIL RIGHTS DIVISION AGRES WITH THE CONTENTION OF THE AMERICAN
HOSPITAL ASSN IN THEIR NEW YORK LAWSUIT AGAINST THE REGULATIONS
THAT MEDICARE/MEDICAID ARE NOT ASSISTANCE TO INSTITUTIONS.
MRS HECKLER AT HE CONFIRMATION HEARINGS STATED THAT THE
PENALTY FOR VIOLATION OF THE REGULATIONS COULD INCLUDE
INELIGIBILITY FOR MEDICARE/MEDICAID.
MEDICARE/MEDICAID RATES ARE SET PRIMARILY ON THE BASIS OF
THE FINANCIAL CONDITION AND COSTS OF THE HOSPITAL OR OTHER MEDICAL
PROVIDER.
FOR EXAMPLE THE FOR-PROFIT HOSPITAL RATE INCLUDES A GUARANTEED
RETURN ON EUQUITY.
DON'T LET JUSTICE CAUSE A MAJ OR POLITICAL EMBARRASSMENT.
GET THEM TO FIGHT THEIR ISSUE ON ANOTHER CASE.
GARY L CURRAN LEGISLATIE CONSULTANT
AMERICAN LIFE LOBBY
6 LIBRARY COURT S.E.
WASHINGTON DC 20003
(202) 546-5550
NNNN
MEMORANDUM
THE WHITE HOUSE
WASHINGTON
April 13, 1983
FOR:
EDWIN L. HARPER
FROM:
MICHAEL M UHLMANN
SUBJECT:
Handicapped Infants Regulation and
Medicare/Medicaid as Federal Financial Assistance
The Problem
Justice and HHS are at an impasse over the issue of whether
Medicare and Medicaid constitute federal financial assistance.
This issue is now presented squarely in litigation against our
handicapped infant regulation in the Southern District of New
York. (In the similar D.C. case pending before Judge Gesell,
plaintiff medical groups did not raise this issue.) The district
judge in New York has set a preliminary injunction hearing for
Monday, and our brief is due Friday. Richard Willard of Justice
believes we can avoid taking a position on this issue in the
brief, but we must be ready with an answer at the hearing on
Monday.
Thus far, we have kept the HHS-DOJ debate over the issue
low-key, to avoid any adverse public flare-ups over the civil
rights implications.
The non-discrimination requirement of Section 504 of the
Rehabilitation Act of 1973 applies to any program or activity
that receives federal financial assistance.
The issue therefore implicates not only the anti-infanticide
regulation, but every federal civil rights scheme that is
triggered by receipt of federal financial assistance: race
discrimination, sex discrimination, handicap discrimination. Any
change in the scope of coverage of this panoply of regulations is
obviously fraught with controversy.
Arguments that Medicare and Medicaid should NOT be considered
federal financial assistance to hospitals (as articulated by
Civil Rights Division of Justice):
Federal Medicaid payments are made to the states, not to
the health care providers; hospitals participating in
Medicaid receive financial assistance not from the
federal government but from the states.
Federal Medicare payments are financial assistance to
elderly patients, not to hospitals.
-2-
-- As with student loans, a federal payment for the
benefit of an individual, which can be used at any
institution the individual chooses, should not bring
the institution under federal control.
--- Medicare is analogous to food stamps, which are not
and should not be considered federal financial
assistance to grocery store chains.
-- Moreover, Medicare is a federal funding program for
the elderly, and a hospital's receipt of Medicare
should not subject the hospital to federal regulation
of its program of health services to infants.
Arguments that Medicare and Medicaid SHOULD be considered
federal financial assistance:
This has been the consistent interpretation of HHS since
the inception of the Medicare/Medicaid program, and has
generally been accepted by hospitals and federal courts.
It is also the position DOJ has taken in litigation as
recently as June 1982, when Baylor Medical Center
objected to HHS investigatory jurisdiction and Justice
filed a brief in federal court saying the institution was
federally assisted because it received Medicare and
Medicaid.
Even though federal Medicaid payments are channeled
through the states, we have generally accepted the
principle that state distribution of federal moneys does
not insulate the recipient institution from federal civil
rights jurisdiction: all our block grants have carried
federal civil rights strings with them.
Politically, we could just as easily be attacked for
trying to deregulate hospitals from civil rights laws as
for trying to deregulate tax-exempt schools in the Bob
Jones case.
Arguments that a hospital should not be covered by the
handicapped infants regulation unless federal funding goes to its
pediatrics ward:
Following the Supreme Court's North Haven decision, we
have taken the position in litigation that only the
specific program or activity receiving federal financial
assistance is covered by civil rights laws.
For example, we have said that federal payments to one
program of a university do not subject all programs of
the university to civil rights coverage.
-3-
Arguments that the entire hospital should be covered if
federal funds go to part of the hospital:
It is not clear that a hospital can be divided into a
"pediatrics program" distinct from other parts of the
hospital, since many types of care are often given within
a single hospital building, administered as a single
program of care for patients.
HHS has considered the entire hospital to be the relevant
program or activity since the 1960s.
The Justice Department brief in the Baylor case follows
the view of the entire hospital as the relevant program
or activity.
The argument against holding Medicare and Medicaid to be
federal assistance has legal and logical merit. The analogy to
food stamps and student loans has merit. However, we have
departed from a thoroughgoing logical approach in this area by
admitting that Pell grants are federal assistance in the Grove
City case.
Analysis
A major complicating factor in this decision is the brief
filed by Justice in the Baylor case. A copy of the Table of
Contents from this brief is attached. However strong our legal
arguments for saying that Medicare and Medicaid payments do not
bring an entire hospital under federal civil rights coverage, we
must be ready to meet the accusation that we are changing our
position.
Politically, we could expect opposition from handicapped
groups, women's groups, civil rights groups, and right to life
groups. Without Medicare/Medicaid as a civil rights handle, a
number of hospitals would drop out of civil rights coverage,
especially with regard to handicap discrimination, since the
Hill-Burton program expired around the time the Rehabilitation
Act was enacted. As for potential political support, we should
consider whether hospitals and medical associations would want to
give public support to an effort that would take many of them out
from federal civil rights coverage.
Recommendation
All deliberations over this issue should involve White
House Counsel's office, since the matter concerns pending
litigation.
- -4-
O
Convene meeting as soon as possible. Recommended
participants:
-- Fred Fielding
-- Ed Meese, Jim Baker
-- HHS (Heckler, del Real)
-- DOJ (Schmults, Reynolds, Willard)
-- OMB (Horowitz, Clarkson)
-- OPD (Uhlmann, Carleson, Bradley)
Instande Gluenton
Baylor University Medical Center
TABLE OF CONTENTS
Statement
1
Summary of Argument
4
Argument
5
I. This Court Has Jurisdiction over the Complaint in this
Action
5
II. The United States Has Stated a Claim Upon Which Relief
Can Be Granted
8
A. Funds Received by Baylor Pursuant to Medicaid
and Medicare Constitute "Federal financial
assistance"
9
1. The consistent administrative construction
of the term "Federal financial assistance"
by HHS, as ratified by the case law, provides
for coverage of recipients of Medicaid and
Medicare funds
9
2. The HHS administrative construction of "Federal
financial assistance" is valid, since funds
provided pursuant to the Medicaid and Medicare
programs do not fall within the regulatory
exclusion for "contracts of insurance"
12
a. Medicaid
12
b. Medicare
14
3. The interpretation of "contracts of insurance"
suggested by Baylor is contrary to the intent
of Congress
18
a. The legislative history to Title VI
18
b. The legislative history to the Medicare
Program
21
B. Baylor Is a Recipient of Other Federal Funds
22
Conclusion
23
THE WHITE HOUSE
WASHINGTON
March 15, 1983
MEMORANDUM FOR JAMES A. BAKER III
FROM:
EDWIN L. HARPER
SUBJECT:
Follow-Up on 3/15 Senior Staff Meeting
Based on Roger Porter's notes from the 3/15 Senior Staff meeting,
I thought you might be interested in the following:
Tracking PRB Activities
The Property Review Board staff implements the policies set
by the PRB including the study of forest service lands for
possible sale as excess property. The staff coordinates its
activities with Fielding's office, Duberstein's office,
Williamson's office, GSA, and OMB via its weekly activity
reports.
The weekly activity reports for the last month are at Tab A.
ACTION
Would you like to receive these weekly reports or would you
like them sent to other members of your staff?
An important asset to coordinating the PRB's activites will
be the WH Legislative Affairs staff's filling the legislative
liaison slot which PRB made available last fall.
Crime Bill and CCLP
As you know we were finally able to resolve all of the
substantive issues on the crime bill without the necessity of a
CCLP.
cc: Edwin Meese III
Dick Darman
Craig Fuller
Josh Muss
TAB A
PROPERTY REVIEW BOARD
*
17th & PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20500
March 14, 1983
MEMORANDUM FOR EDWIN L. HARPER
CHAIRMAN, PROPERTY REVIEW BOARD
FROM:
BRUCE I. SELFON B
SUBJECT:
ACTIVITIES REPORT - WEEK OF MARCH 7, 1983
The principal activities for the Property Review Board
staff follow:
1. Met with Congressman Ken Kramer and James D. Range,
Legislative Counsel to Senator Howard Baker, for
discussions re Asset Management Program of the
Forest Service.
2. Held meeting with representatives of GSA,
Department of the Army and Justic Department re
Hamilton Air Force Base. A separate meeting with
Congresswoman Barbara Boxer was also held.
3. Met with Congressman Frank Horton for discussions
on the future of the Land Use Project, which is
being studied for disposal near Hector, New York.
4. Received from the Department of Education written
confirmation of their ability to expand their program
to support the transfer of surplus property to state
and local governments for correctional facilities.
5. Met with Harry Walters to discuss the relationship
of the property initiative to the Veterans Administration.
6. Met with Assistant Secretary of the Air Force
Tidal McCoy re property initiative.
- 2 -
Next week's planned activities:
1. Joshua Muss reviewing controversial properties
in Rhode Island with Rhode Island congressional
delegation.
2. Meet with Congresswoman Cardiss Collins, new
Real Property Oversight Sub-committee Chairman.
3. Meet with Secretary Watt re property management
initiative.
4. Meet with Assistant Secretary of the Army Joel Bonner
re property management initiative.
CC:
Gerald Carmen
Kevin Hopkins
Fred Khedouri
Mike Horowtiz
David Waller
Nancy Risque
John Cooney
Roger Adkins
Jim Murr
Richard Hauser
Richard Williamson
PROPERTY REVIEW BOARD
17th & PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20500
March 7, 1983
MEMORANDUM FOR EDWIN L. HARPER
CHAIRMAN, PROPERTY REVIEW BOARD
FROM:
JOSHUA A. MUSS
SUBJECT:
Activities Report - Week of February 28, 1983
The principal activities for the Property Review Board staff
follow:
1.
Reviewed asset management program maps prepared by the
Forest Service.
2.
Appeared before the Society of American Foresters Asset
Management Task Force.
3.
Met with investment bankers to discuss establishment of
a new financing vehicle for surplus property sales.
4.
Interviewed by Kiplinger. Newsletter reporter (cleared
by OPI)
5. Met with George Sawyer, Assistant Secretary of the Navy
(Shipbuilding and Logistics) re Department of Navy's
role in property management program.
Next week's planned activities:
1.
Meet with key Congressional Congressional members and
staff to discuss Forest Service legislative proposal.
2. Meet with representatives of GSA, Justice and Department
of the Interior to discuss status of Hamilton Air Force
Base.
3. Meet with Administrator of Veterans Administration and
with Assistant Secretary of the Air Force to review
progress of the property management initiative.
4. Meet with veterans groups and Justice Department re
Pershing Hall legislative proposal.
CC: Gerald Carmen
Kevin Hopkins
Fred Khedouri
Mike Horowitz
David Waller
Nancy Risque
John Cooney
Roger Adkins
Jim Murr'
Richard Hauser
Richard Williamson
PROPERTY REVIEW BOARD
17th & PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC. 20500
February 28, 1983
MEMORANDUM FOR EDWIN L. HARPER
CHAIRMAN, PROPERTY REVIEW BOARD
FROM:
BRUCE I. SELFON B
SUBJECT:
Activities Report - Week of February 21, 1983
The principal activities for the Property Review Board staff
follow:
1. Met with Senator Inouye and Congressman Heftel of Hawaii
to discuss Kaloko-Honokohau National Historical Park and
Fort DeRussy. Next step is to consult with Governor
Ariyoshi.
2. Met with Senator McClure's personal staff and Committee
on Energy and Natural Resources staff to discuss Forest
and public information program for asset
management program.
3. Met with Congressman Kramer to discuss status of property
management initiative and to inquire of his interest in
introducing the National Debt Retirement Act of 1983.
4. Met with Gerald Carmen, Ray Kline, Edwin Harper and GSA
staff to discuss progress of the sales initiative at GSA.
5. Met with Jerry Dondero and Paul Wagner, who represent the
Greenwell Estate on the status of Kaloko-Honokohau
National Historic Park.
6. Met with minority staff of the House Government Operations
Committee to discuss oversight activity in the 98th
Congress.
7. Met with staff of Senator Mathias to discuss his bill to
prohibit sale of property at Beltsville Agricultural
Research Center.
Next week's planned activities:
1. Appear before the Society of American Foresters Asset
Management Task Force.
2. Meet with investment bankers to discuss establishment of
a new financing vehicle for surplus property sales.
3. Meet with Governor Ariyoshi to discuss Hawaiian properties.
4. Interview by Kiplinger Newsletter reporter (cleared by OPI).
CC:
Gerald Carmen
Kevin Hopkins
Fred Khedouri
Mike Horowitz
David Waller
Nancy Risque
John Cooney
Roger Adkins
Jim Murr
Richard Hauser
Richard Williamson
PROPERTY REVIEW BOARD
17th & PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20500
February 18, 1983
MEMORANDUM FOR EDWIN L. HARPER
CHAIRMAN, PROPERTY REVIEW BOARD
FROM:
BRUCE I. SELFON B
SUBJECT:
Activities Report - Week of February 14, 1983
The principal activities for the Property Review Board staff
follow:
1.
Met with Gerald Carmen for further discussions of GSA
implementation of the property management initiative.
2.
Met with Don Sowle of the Office of Federal Procurement
Policy for general discussions regarding possible procure-
ment of investment banking services.
3.
Met with Forest Service representatives for review of
their asset management maps of lands scheduled for further
study.
4.
Sent to the Interior Department an outline of proposed
legislation on Pershing Hall Memorial in Paris.
5.
Held further discussions with Defense and OMB regarding
Section 802 of Milcon.
6.
Provided comments to the Department of Interior on a
marketing strategy for their sale of lands under FLPMA.
Next week's planned activities:
1.
Meeting scheduled with Senator Inouye and Congressman
Heftel to discuss Kaloko-Honokohau Historical Park and
other Hawaiian properties.
2.
Meeting scheduled with Senate Committee on Energy and
Natural Resources staff to show them a typical Forest
Service asset management map.
3.
Joshua Muss to be interviewed by a reporter for the
Philadelphia Inquirer for overall one-year update on the
PRB program. (Cleared by OPI).
4.
Meeting scheduled with John Duncan, Minority Staff
Director, Committee on Government Operations, to
discuss the property initiative in the 98th Congress.
CC: Gerald Carmen
Kevin Hopkins
Fred Khedouri
Mike Horowitz
David Waller
Nancy Risque
John Cooney
Roger Adkins
Richard Hauser
Jim Rish Williamson Murr
PROPERTY REVIEW BOARD
17th & PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20500
February 14, 1983
MEMORANDUM FOR EDWIN L. HARPER
CHAIRMAN, PROPERTY REVIEW BOARD
FROM:
JOSHUA A. MUSS
SUBJECT:
Activities Report - Week of February 7, 1983
The principal activities for the Property Review Board staff
follow:
1.
A meeting was held with the Assistant Secretaries of
Education, Health and Human Services, Interior, and
representatives of General Services Administration and
the Department of Justice to discuss prior discount
conveyances. The PRB staff presented a review of past
practices. The agencies agreed to establish uniform
criteria for future conveyances and to prepare a written
report within two weeks on suggested new standards.
2.
Joshua Muss met with Ted Neuenschwander and Max Rogers
of Senator McClure's staff, and with Gary Ellsworth and
Tony Bevinetto, staff members of the Senate Energy and
Natural Resources Committee, to discuss the asset manage-
ment programs of BLM and the Forest Service.
3.
Met with Fred Khedouri, John Crowell and David Swanson
regarding USDA legislative strategy.
4.
Met with Albert Abrahams of the National Association of
Realtors to discuss real estate brokers.
5.
Met with representatives of Department of Justice to
discuss the legislative proposal for Pershing Hall.
Next week's planned major activities:
1.
Meeting scheduled with Gerald Carment) to discuss GSA
operations.
2.
Meeting with Don Sowle to discuss procurement of invest-
ment banking services.
cc: Gerald Carmen
Annelise Anderson
Fred Khedouri
Mike Horowitz
Kevin Hopkins
Nancy Risque
John Cooney
David Waller
Jim Murr
Richard Hauser
Roger Adkins
OPEN
memor
<
THE WHITE HOUSE
WASHINGTON
TO cicconi
1/13/13
January 12, 1983
MEMORANDUM FOR JAMES A. BAKER
JIM CICCONI
FROM:
VELMA MONTOYA Velma
At the White House Senior Staff Christmas party, my husband, Earl
Thompson, began to describe his "labor standard" for the economy
that suggests the convertibility of money into a fixed quantity
of labor. You asked him to put it in writing. Here it is, both
a three-page summary and a longer version, both presented to the
Gold Commission.
Implementation of the standard has the characteristics of
eliminating inflation, the business cycle, and governmental
monetary control, while permitting efficient, laissez faire
banking.
FREE BANKING UNDER A LABOR STANDARD --
THE PERFECT MONETARY SYSTEM
Submitted by
EARL A. THOMPSON
DEPARTMENT OF ECONOMICS
UNIVERSITY OF CALIFORNIA, LOS ANGELES
JANUARY 8, 1982
No one to my knowledge has prescribed a financial system that would, at
least within familiar economic paradigms, guarantee an automatic, simultaneous
cure for all of our macroeconomic maladies (viz., inefficient fluctuations in
employment, persistent and highly variable rates of inflation or deflation,
and governmentally created, artificial scarcities of money). Economists seem
to believe that such a system does not exist. However, there is a financial
system -- one with a labor standard and free banking -- that would, at least
theoretically, simultaneously prevent all macroeconomic ills regardless of the
kinds of shocks that hit our economy and without any reliance whatsoever on
discretionary policy intervention.
The only governmental responsibility in this financial system is to make
the dollar freely convertible into an amount of gold, or noncurrency redemp-
tion asset that government finds most convenient, just enabling the redeemer
to purchase a predetermined, fixed amount of labor in the free market.
So, theoretically speaking, a dollar will always buy a constant amount,
say five minutes, of U.S. labor. This creates a stable and intertemporally
constant wage level. To see this, suppose that the free market level of money
wages were to increase, ceteris paribus. The amount of gold required to pur-
chase a unit of labor would increase correspondingly. Since the public could
then obtain more gold for a dollar from the government than they could from
the free market, arbitrageurs would profit by turning dollars into the govern-
ment for gold and then selling the gold in the free market. The resulting,
automatic drain of dollars from the system would serve to depress money wages.
The induced reduction in the free market's money price of gold would not reduce
the arbitrage profit because a lower gold price immediately increases the
amount of gold required to purchase a unit of labor and therefore the amount
of gold one can obtain from the government for a dollar; as the financial re-
turn to the gold purchase and resale decreases, its cost decreases by the same
amount. The currency drain, therefore, continues until the money wage rate is
restored to its original level.
In a world with many kinds of labor, our standard would stabilize the
quantity-weighted average wage rate, e.g., the 30-million worker, B.L.S.
monthly wage index, thereby giving an individual, for his dollar, an amount of
gold just enabling him to purchase a representative set of labor services
totalling a constant number of man-minutes of U.S. labor.
Since monthly wage index data are not available until well into the
following month, a practical problem arises as to how to determine the relevant
2
conversion prices. To solve this, the government should make its conversion
payments assuming that the wage index will be at its theoretical value, but
compensate all large converters ex post for subsequently observed increases in
the index from its theoretical value and, of course, charge them for decreases
in the subsequently observed index. Thus, the government would make its March
conversion payments assuming that the average cost of five minutes of labor
during March is $1.00; but if this average cost turns out to be, say $1.02,
then all large converters would be due an extra 2% gold payment while if the
index were, say, at $.97, the large converters would have to pay 3% more dol-
lars to the government. Thus, if informed speculators thought, on balance,
that the March wage index was going to be above $1.00, they would, on balance,
convert dollars to gold, simultaneously sell the gold in the free market, and
wait for their expected compensation from the government in the following
month. The dollar drain created by this operation would depress the expected
wage level until it reached unity. In this way we would always have an ex-
pected wage index, an expected dollar cost of five minutes of labor, of $1.00.
Another practical problem, a temporary one, is posed by the fact that
existing contracts are geared toward about a 10% annual increase in money
wages over the next few years. Allowing gradual decreases in the labor con-
version rate for a few years, commencing at a 10% annual rate, before stabiliz-
ing it at, say, five minutes of U.S. labor for a dollar (i.e., to where the
average wage level is $12 per hour) would preclude potentially very costly re-
contracting and at the same time substantially reduce the redistributional
component of the increase in the value of existing long-term bonds. Alterna-
tively, a new, recognizably distinct, labor-convertible dollar could be
printed. This would not only allow existing contracts requiring the delivery
of future dollars to be executed in the old, Fed-controlled, depreciating dol-
lars and thereby permit an immediate move to an intertemporally constant wage
level in terms of the new currency; it would also, by enabling the government
to prohibit the Fed from transacting in new dollars, prevent the Fed from in-
advisedly attempting to neutralize the efficient, labor-standard, currency
flows between the Treasury and Public. After a while, once most old-dollar
obligations have been fulfilled, and the new dollar has supplanted the old,
the Fed could take over the Treasury's conversion operation, although this
would presumably require an Act of Congress. Such an Act should also eliminate
reserve requirements, bank interest rate regulations, rediscounting and open
market operations as needless constraints on the free market's efficient,
competitive provision of a currency-convertible medium of exchange. The
intertemporally constant wage rate would insure the automatic absence of inef-
ficient business-cylce unemployment and the removal of the artificial con-
straints on the banking system would assure a statically efficient, competitive
banking system.
While inefficient fluctuations in employment would disappear under a
labor-standard, they would be greatly exacerbated by returning to a simple
gold standard because money wages and employment under a gold standard are
altered by variations in the free market's relative price of labor in terms of
gold and because the relative price of assets fixed in supply to the world has
become highly unstable and should be expected to remain so over the foreseeable
future. For the same reason, adopting the discipline of a commodity index
standard would induce more severe employment swings than we've witnessed over
the past decade. Moreover, unlike a gold standard, a labor standard would neither
require international cooperation nor lay us open to foreign economic sabotage.
3
Finally, the resumptions of convertibility that would occur under a labor
standard following wartime convertibility suspensions and inflations -- in
sharp contrast to gold standard resumptions -- would create nothing like the
gradually decreasing money wages and great depressions characteristic of our
sordid past under the gold standard. Resumptions of convertibility under a
labor standard would instead produce the immediate wage and price level ad-
justments characteristic of harmless currency reforms. The system would be
depression-proof.
FREE BANKING UNDER A LABOR STANDARD
Prepared for the U.S. Gold Commission
November 1981
By Earl A. Thompson, UCLA
Macroeconomic ills -- inefficient fluctuation in employment, per-
sistent and highly variable rates of inflation or deflation, and govern-
mentally created, artificial scarcities of money -- have received a sig-
nificant and probably increasing portion of economists' attention over the
past couple of centuries. Yet no one to my knowledge has specified a
financial system that would, at least within familiar economic paradigms,
guarantee a simultaneous cure for all these maladies without creating new
ones. Economists seem to believe that such a system does not exist. How-
ever, there is a financial system -- one with free banking and a labor
standard -- that would, at least theoretically, simultaneously preclude all
of these macroeconomic ills regardless of the kinds of shocks that hit our
economy and without any reliance on discretionary policy intervention.
The first part of this paper describes a competitive economy with free
banking under a labor standard and discusses some problems of implementa-
tion. The second explains its efficiency compared to the existing system.
The third explains its efficiency compared to other systems such as the
2
classical gold standard, commodity-bundle convertibility systems, and gold-
1
based fractional reserve systems.
A simple advantage of this theoretically perfect system is that it
requires no international cooperation whatsoever. Hence, international
banking and trade issues will receive no detailed consideration in this
paper.
1
Theoretical background for these efficiency arguments can be found in
my 1974 and 1977 papers. These papers explain the static efficiency of a
competitive banking system. The 1974 paper also points out a critical
dynamic defect in the classical gold standard in that shifts altering the
free market value of gold, relative to other outputs, alter money wage and
employment levels more than under a modern, fixed-money-supply regime; cor-
respondingly, it points out that by far the worst depressions of modern
history, all of which occurred under a gold standard, were the obvious re-
sults of such shifts. The papers make no mention of the labor standard
developed here. The latter did not occur to me until a UCLA graduate stu-
dent, Gertrud Fremling, informed me of the possibility of a "variable gold
standard," a standard apparently first proposed by Simon Newcomb before the
resumption of the U.S. gold standard in 1879 and again later by his student,
Irving Fisher (in Stabilizing the Dollar) in 1920, prior to the European
gold-standard resumptions of the mid-late 1920's. (Each policy suggestion
was ignored and, as a result, each resumption created a needless and severe
depression.) Their suggested monetary standard tied the amount of gold one
could obtain for his currency to an index of commodity prices. A similar,
simple type of convertibility, suggested by many authors, ties the dollar
to a given commodity bundle rather than just gold. My variation on the
Newcomb-Fisher theme ties gold payments to a wage index rather than a com-
modity price index and allows substitutes for gold payments at the conve-
nience of the government. If these authors had the modern theory of rational
unemployment and the monthly, 30 million-worker, BLS wage index available
to them, I suspect they too would have espoused some kind of labor standard.
3
I. THE MEANING OF A LABOR STANDARD WITH FREE BANKING
A. A Labor Standard. A labor standard, like a classical gold
standard, allows people to convert their currency into "gold," the non-
currency asset of the government that it finds most convenient to redeem
for currency. But unlike the classical gold standard, the quantity of
gold one can obtain for his currency is not a given constant. One obtains,
instead, an amount of gold just enabling him to purchase a fixed amount of
labor in the free market.
So, theoretically speaking, a dollar will always buy a constant
amount, say five minutes, of U.S. labor. This creates a stable and inter-
temporally constant wage level. To see this, suppose that, for whatever
reason, the free market level of money wages were to increase. The amount
of gold required to purchase a unit of labor would increase correspondingly.
Since the public could then obtain more gold for a dollar from the govern-
ment than they could from the free market, arbitrageurs would profit by
turning dollars into the government for gold and then selling the gold in
the free market. The resulting, automatic drain of dollars from the system
would serve to depress money wages. The induced reduction in the free
market's money price of gold would not reduce the arbitrage profit because
a lower gold price immediately increases the amount of gold required to
purchase a unit of labor and therefore the amount of gold one can obtain
from the government for a dollar. As the financial return to the gold
purchase and resale decreases, its cost decreases by the same amount. The
currency drain, therefore, continues until the money wage rate is restored
to its original level.
4
While gold, the metal, could possibly become relatively inconvenient
for the government to deliver in this arbitrage process, there is no rea-
son for a legal commitment to payments in the form of this metal. Other,
sometimes more convenient redemption assets, such as other metals, may be
used instead. Even bonds may be used on a temporary basis. The converter
is only interested in what the asset obtained for his currency will fetch
in private markets; an amount that stays the same under fixed labor con-
vertibility regardless of which asset the government surrenders to redeem
the public's currency.
In a world, like our own, with many kinds of labor, each receiving its
own variable money wage rate, our standard would stabilize the quantity-
weighted average wage rate, e.g., the B.L.S. monthly wage index, thereby
giving an individual, for his dollar, an amount of gold just enabling him
to purchase a representative set of labor services totalling a constant
amount, say five minutes, of man-hours of U.S. labor. (Other countries
would be encouraged, in the interests of their own economies, to tie
their currencies to their own wage indices rather than the dollar.)
Since monthly wage index data are not available until well into the
following month, a practical problem arises as to how to determine the
relevant conversion prices. The best method that has occurred to me is to
have the government make its conversion payments assuming that the wage
index will be at its theoretical value, but compensate (charge) all large
converters ex post for the subsequently observed deviation in the index from its
theoretical value. Thus, the government would make its March conversion
payments assuming that the average cost of five minutes of labor during
March will be $1.00; but if this average cost turns out to be, say $1.02,
5
then all large converters would be due an extra 2% gold payment while if
the index were, say, at $.97, the large converters would have to pay 3%
more dollars to the government. Thus, if informed speculators thought, on
balance, that the March wage index was going to be above 1.00, they would,
on balance, convert dollars to gold, simultaneously sell the gold in the
free market, and wait for their expected compensation from the government
in the following month. The dollar drain created by this operation would
then depress the expected wage level until it reached, on balance, unity.
In this way we would always have an expected wage index, an expected dollar
cost of five minutes of labor, of $1.00.
Another practical problem, a temporary one, is posed by the fact that
existing contracts are geared toward about a 10% annual increase in money
wages over the next few years. Allowing gradual decreases in the labor conversion
rate for a few years, commencing at a 10% annual rate, before stabilizing it
at, say, 5 minutes of U.S. labor for a dollar (i.e., to where the average
wage level is $12 per hour) would preclude potentially very costly recon-
tracting and at the same time substantially reduce the redistributional
component of the increase in the value of existing long-term bonds.
B. Free Banking. An economy with free, unconstrained, competitive
banking has no governmental regulation on the quantity of money it can
issue. There are no reserve requirements held by the government and no
restrictions on interest payments. Federal reserve banks would serve only
as clearing houses. Banks would be free to print their own notes as long
as the notes could be easily distinguished from those of other entities
and were convertible into government issue or gold. Deposit insurance
would, however, be maintained to reduce the individual over-risk incentives
6
of banks due to the inability of some of the creditors of a bank's finan-
cially dependent creditors to observe, and thereby economically appreciate,
the quality of the loans made by the bank.
Most important, as emphasized by the nineteenth century advocates of
laissez-faire banking, currency overissue and underissue by the government
would be impossible in such a system. An unprovoked governmental injection
of currency would, if not immediately neutralized by private conversion, put
upward pressure on wages and create an arbitrage profit to conversion, a profit
that would not be removed until the injection is neutralized by the arbitrage-
motivated conversions. Similarly, if government currency came into short
supply, private gold sales to the government would expand the currency supply
before wages could fall to any appreciable degree. This classical "Law of Reflux"
would thus assure against governmental overissue and underissue without any
reliance whatever on system-wisdom on the part of government authorities.
7
II. THE ECONOMIC EFFICIENCY OF FREE BANKING UNDER A LABOR STANDARD
A. Financial Efficiency
By allowing banks to freely compete with other debt issuers rather
than choking them back with reserve requirements and restrictions on inter-
est payments, we would remove the current, artificial excess of bank lending
rates over certain borrowing rates, an excess that has unnecessarily in-
creased borrowing costs to business and forced small depositers around the
country to inefficiently substitute back and forth into and out of a myriad
of very short term asset positions in order to avoid the artificially low
interest rates offered them by the banks. (I have estimated our loss in
real wealth from this contrived, inefficient redirection of short term lend-
ing away from banks to be in excess of $200 billion in 1980 dollars.) Sub-
stantial additional savings would come from the cessation of our speculation-
inducing, frustrating attempts to control the economy's various money
supplies and also from the end of federal regulation of individual banks.
(Although some additional governmental expenditures would be required to
make conversion payments and issue currency in exchange for gold, there is
little reason to believe that they would exceed the simple transaction-cost
component of current governmental attempts to keep our various money supplies
within their targeted ranges.)
As average output prices decline over time under a simple labor standard
at a rate equal to the increase in the real wage rate (about 2% annually if
history is any guide) the holding of currency would be rewarded by a real
interest rate that is probably only slightly below the typical real rates
on other assets. While this is approximately optimal, knowledge of an
exact optimum would not be possible unless private banks are just as good
8
at producing currency as the government, in which case the exact optimum
occurs where the money rate of interest competing banks would pay to in-
duce people to hold their currencies matched the governmental rate of zero.
Even at this exact "optimum," there may be special social costs of adjusting
the physical attributes of the government currency supply based on the
gradual deflation of output prices. As a result, even if future governments
have no serious competition in the business of supplying currency, it may
be better, as a practical matter, to allow a gradual, committed, fixed
escalation of the wage-level, a gradual and constant decrease in the
amount of labor one can obtain for his dollar through conversion. This
trend value, having strong psychological as well as economic returns and
costs, is best, I believe, left to the political process to determine.
My suggestion then would be to reduce the labor content of the dollar
so that money wage growth increased in the following sequence:
10%
1st year
8%
2nd year
6%
3rd year
4%
4th year
2%
5th year
2%
6th year
2%
7th year
2%
8th year
2%
9th year
2%
10th year.
At the end of the eighth or ninth year, I'd see if several, private, compet-
ing substitutes for treasury notes and coins were developing. If they were,
I'd examine the implicit interest rate on them and reduce the wage inflation
rate by this rate so as to make this competitive interest rate zero. If
such substitutes were not developing, I'd have congress vote on whether to
keep the rate at two percent or go to one or zero percent.
9
It should be pointed out that short-term interest rates under wage-
level constancy would normally be so low that the government's short-term
debt would be essentially non-interest bearing. Currency would be so
readily held as an appreciating short-term asset that treasury bill financing
requirements would be reduced to insignificance. The resulting savings in
transaction costs provide an additional reason for preferring constant
rather than constantly increasing money wage rates. With money wages
rising around 2% per year, the average annual treasury bill rate would be
around 2%, and bills, as now, would be a frequently important source of
government finance.
In either case, competitive interest rates on savings accounts would
be so low that demand deposits would replace time deposits and existing
nonbank financial intermediaries would either become banks or be absorbed
by banks. The substantial, socially wasteful, transaction costs people
now endure in switching between savings accounts, treasury bills, and bank
checking deposits would be gradually eliminated as the system approached
its noninflationary equilibrium.
B. Dynamic Efficiency
While some swings in overall commodity prices and outputs would remain
under labor convertibility, there is no reason for us to want them eliminated.
Such fluctuations may merely reflect the changing values informed individuals
place on commodities over time. What we should want eliminated are the
erroneous decisions by labor over what we have come to know as the business
cycle. These errors are based on the inability of labor to distinguish
changes in the economy's overall wage level from changes in relative wages
10
between various kinds of employment. Economists have long observed that
whenever the overall wage level drops below its usual trend, many workers
leave their current employments. This may be because they have some form
of rigid, fixed-wage contract with their employers; but more likely they
erroneously believe that wages have not also fallen elsewhere -- that there
has been a change in the relative returns across different types of employ-
ment rather than a change in the overall wage level. In either case, the
result is excessive job-search, occupational re-tooling, and, perhaps, lei-
sure during a period of decreasing wages and too little of such activity
during booms. Moreover, during normal times, i.e., when average wages are
on trend but there are still unexpected expansions in employment opportuni-
ties in some industries but contractions in others, laborers being offered
lower than expected wages are, in our economy, tempted to believe that the
economy is in recession, i.e. that wage offers have been reduced everywhere
else too, and will remain in this low-valued use too long. This creates
too little normal, "frictional" unemployment -- too little job mobility --
in our economy and is a partial rationale for our expensive system of unem-
ployment compensation.
These inefficiencies in the labor market, and the highly expensive
policies that are employed to combat them, would all be immediately removed
by adopting a system of labor convertibility.
There are many sources of inefficient employment cycles in our current
economy. Increases in money demand -- when not matched by equal increases
in our governmentally controlled money supplies -- induce people to sell
assets, create lower prices and wage offers, and therefore inefficient un-
employment. Increases in the price of imported oil -- when not matched
11
by immediate jumps in the money supply -- cause decreases in the produc-
tivity of labor, lower wage offers throughout most of the economy, and in-
efficient unemployment. Whatever the cause of such unfortunate business
swings, labor convertibility would eliminate them. It would do this by
automatically neutralizing such shocks with immediate, endogenous changes
in the privately determined money supply. An increase in money demand
would just be supplied by the unconstrained, private bankers or through
reductions in conversions with the passive Federal Reserve, which would be
filling its originally mandated function of quickly responding to the "needs
of trade." A lower productivity of labor through higher costs of imported
oil would, by raising the price of non-labor commodities and the demand for
money, induce an equal increase in the supply of money and no inefficient
unemployment. The business cycle, as it is usually conceived, would be
dead.
Moreover, the economy would gain through increased mobility and or-
dinary job search and could justifiably cut way down on its expensive sup-
port of unemployment compensation.
12
III. THE SUPERIORITY OF LABOR TO OTHER CONVERSION STANDARDS
A. Commodity Index Convertibility
Commodity index convertibility, and thus price level stability, in our
modern economy would be substantially inferior to labor convertibility.
This is because the world in recent years has become much more subject to
large jumps in the values of assets that will be fixed in supply to the
world in the foreseeable future, gold, oil, collectables, etc. This means
that keeping average commodity prices constant still creates a great deal
of money wage variability and unemployment. We would, for example, have
had falling money wages and much more unemployment during the sluggish
1970's under a constant commodity price index than under our current,
feeble, government-controlled monetary system. Depression levels of employ-
ment would have been approached and fixed-commodity-bundle convertibility
probably abandoned as a financial system. In contrast, no such instability
exists under labor convertibility, a system that allows price
levels to rise and fall with the rise and fall in commodity demands.
The superiority of labor convertibility over commodity index con-
vertibility is so substantial given the recent instability of commodity
values that even though I estimate a jump of about 20% in our national
wealth by going from our current system to labor convertibility, I would
recommend our current system over commodity index convertibility. The de-
pression-potential of price-level-stability is just too great in a modern
economy.
13
B. The Classical Gold Standard
Returning to a simple, pre-1933, freely convertible gold standard
would undoubtedly be the single worst economic policy in U.S. history.
Under a simple, convertible gold standard and free banking, the money
price of gold is pegged by the government; so the average money prices of
all goods, i.e., "the price level," varies directly with the free market
evaluation of these goods relative to gold. A jump in the public's demand
for gold would, by forcing the government and other money suppliers to ab-
sorb money in exchange for gold under free convertibility, depress the
price level by a percentage drop equal to the percentage increase in the
relative value of gold.
The magnitudes involved are hair-raising. For example, suppose that
in August, 1971, President Nixon, rather than abandoning the last vestiges
of the gold standard, returned us to the freely convertible, competitive-
banking, gold standard, the type of return last tried in the late 1920's
by several European countries. Since the remainder of the 1970's was
marked by a 2,000% increase in the real value of gold, the price level would
have had to fall to 20 1 th of its 1971 level in order to prevent a drain of
our gold reserves. This might not sound bad; but to maintain 1980 profits
and production, 1971 workers would have had to be willing to continue working
at wages close to 20 1 th of their 1971 level rather than either jumping on to
employment insurance, welfare, and governmental training programs or quit-
ting to search out what they erroneously perceived to be now-greener pas-
tures. Experience shows that they would not have been so willing. The
comparatively small, 25% wage reduction during the great depression, when
government welfare alternatives were virtually absent, produced a decrease
14
in employment of about 25%. And we're talking -- realistically -- about a
reduction in the wage level to 20ᵗʰ, 1 not 3/4, of its normal level!
Our economic and political system barely survived the celebrated return
to the discipline of the gold standard in the late 1920s. Such a return in
the early 1970s would have clearly shattered our system beyond recognition.
The old gold standard always was vulnerable to variations in the value of
gold relative to other goods. It never was a desirable system in terms of
business-cycle-stability. What would make it an order-of-magnitude worse
in modern times is the much greater volatility of the relative values the
public places on gold. Gold's possible future use as a high-technology con-
ductor and as a middle class consumption good for a rapidly awakening
Orient, coupled with its long term fixity of supply, has made gold a tre-
mendously speculative asset by historical standards. In sharp contrast,
under a labor standard with free banking, a jump in the relative value of
gold would simply reduce the amount of gold -- but not labor -- one could
get in return for his dollar. Wage and employment levels would remain unaffected
by the shift.
Historically, the most serious practical defect in the gold standard
appears because of wartime suspensions of convertibility rights. During
major wars, the executive branch of government has the justifiable power to
finance expenditures by expanding the currency supply, thus taxing preexist-
ing currency at will through the familiar inflation tax. To do this, the
government must, of course, suspend convertibility. The resumption of con-
vertibility at historical conversion rates is the root cause of the worst
depressions in world history. Such resumptions inevitably forced price
levels back to around prewar levels as the relative price of gold had little
15
reason to fall from prewar levels. Monetary authorities in each postwar decade
(1820's, 1870's, 1920's) had hopefully bet that the free market, equilibrium
real price of gold had, for some reason or another, fallen at least 50% although no
gold discoveries occurred during these periods. The bets where based more
on wishful thinking than anything else. In any case, the gradual increase
in demand for gold stocks occasioned by these returns to the gold standard
each, inevitably, led to gradual decreases in the world price level and de-
pressions. (The best economists, and informed speculators, were well-aware
of all this. Ricardo preached bullionism to save gold reserves prior to
resumption in the 1820's. Keynes preached England's continuance of the gold
exchange standard for the same reason. Fisher, as we have said, preached a
variable gold standard and fixed level of commodity prices. So did Newcomb
in 1879. All were ignored. Speculators after Europe's return to the gold
standard was completed in 1928 believed, correctly, that the only hope for
the world economy was for the U.S. to induce, through domestic inflation, a
large outflow of gold to support Europe's new gold demands. They bid up the
price of shares in U.S. companies in expectation of the correct, stimula-
tive, U.S. policy. But our ill-conceived monetary policy in mid-1929, one
designed to reduce stock market speculation, signalled the unwillingness of
the U.S. to sustain such a boom, and the world economy, quite naturally,
collapsed, with the informed speculators getting in and out at just the
right times, leaving everyone else taking a bath. I would expect a very
similar sequence if Europe were to now return to the gold standard.)
An important advantage of a labor standard in this regard is that a
resumption shock under a labor standard would have a single, one-shot
effect on the wage level. Consequently, most all laborers would recognize
18
created shortages of money in the case of an exogenously increasing gold base and
secular inflation or (b) a liquidity trap economy subject to a vicious,
endless spiral downward in prices and interest rates. (This is not com-
monly known; it's based on a fallacy in Keynesian logic. I'll send a paper
on request. The dynamic story goes: prices fall a little. This lowers
real profit rates a little. This in turn increases the demand for money
despite the reduced transactions-demand for money because of the high
interest sensitivity of the demand for money at low interest rates. This
lowers prices some more and the sequence is repeated until the price level
reaches zero!)
If, however, only government-produced money, i.e. currency, were con-
strained by this gold reserve requirement, and if all quantity restraints
were taken off the existing banking system, the new system being based on
competitive banking with convertibility into U.S. currency, then these de-
fects would not exist. We would still, however, be subject to unintended
variations in the currency-gold stock and in the demand for government cur-
rency relative to other forms of money. So there are many "ifs" for a gold
reserve system to avoid some very large costs; and, even when the condi-
tions are met, the system is less stable and requires more governmental
wisdom than a labor standard. The same, of course, could be said for any
variant of our current system in which we remove all constaints on our banks
and have the government control only the supply of its own currency.
16
that all labor services after resumption was worth much less money than
during the war and that the universally lower money wages would buy about
the same basket of consumer goods as their previous wages did. It follows
that postwar resumption at the original exchange rate would induce almost
no inefficient unemployment. It could therefore be automatically imposed
at the official ends of our future, hopefully infrequent, wars. Guaranteed,
immediate postwar resumption would have the added advantage of preventing
post-war recessions borne out of the expectation of lower future prices and
wages. Advancing such periods of expected deflation to wartime converts
the social cost of postwar recessions into the social benefit of decreasing
the real cost of wartime finance.
C. Gold Exchange Standards
Gold exchange standards, under which we provide gold convertibility
for foreigners but not ourselves (in order to conserve on gold supplies)
have none of the advantages of domestic convertibility standards. We would,
like in both postwar periods of this century, have central-bank rather
than private determination of our money supplies. As a result, we would
suffer from the same susceptibility to exogenous shocks that we have under
our current system.
While the system would provide some, at least temporary, discipline on
monetary authorities, I don't believe that they need it. Their job is hard
enough without it. For example, if the authorities had to maintain such
convertibility during the 1970's in the face of the gigantic excess demand
for gold at an average of $35, they would have had to deflate in a way very
similar to the way a classical gold standard in order to maintain our gold
17
reserve. The appropriate monetary policy in the 1970's was stable growth
except for upward jumps immediately following the oil price jumps. While
the authorities certainly missed the mark by letting money supplies rise
only gradually and giving us a costly secular-inflation, at least they did
not give us the hair-raising depression that we would have had under the
discipline of the gold or gold exchange standard.
It's true that we could, under a flexible gold exchange standard, ad-
just the price of gold with market conditions. But we would have no
"standard" at all if we continually adjusted the price of gold. We would
just have our current, inconvertible, fiat money economy. And adjusting
the price of gold in jumps rather than continuously would provide no obvious
benefits to anyone except gold speculators, monetary authorities, and
international economists. We would have the same business cycle, the same
artificial scarcities of domestic money supplies and dependence on monetary
authorities; and approximately the same incentive to inflate as we have
under the current, slightly more flexible, monetary system.
D. Gold Reserve Systems
Gold reserve systems limit the supplies of certain kinds of money to
fixed multiples of certain gold stocks. An excess of existing over required
gold supplies makes the system behave in the same, unconstrained fashion as
our current system. If and when the constraint is reached, we tie the hands
of our monetary authorities so that they are unable to respond to reces-
sionary shocks. Only extreme monetarists appreciate this kind of discipline.
And even if monetary authorities had no control of the gold base and the
monetarist judgment that business cycles are largely a Fisherian "Dance of
the Dollar" were correct, we would still suffer from either (a) artificially
REFERENCES
1. Fisher. Irving, Stabilizing the Dollar, New York, 1920
2. Newcomb, Simon, "The Standard of Value" North American Review, Vol. CXXIX,
1879, pp.233-237
3. Thompson, Earl, "The Theory of Money and Income Consistent with Orthodox
Value Theory", in Essays in Honor of Lloyd Metzler, eds. G. Horwich and
P. Samuelson, New York, 1974
4.
, "The Optimal Role of the Government in a Competitive Economy
with Transaction Costs" in American Re-evolution, ed. R. Auster, Tucson,
1977
THE WHITE HOUSE
WASHINGTON
December 21, 1982
MEMORANDUM FOR JAMES A. BAKER III
FROM:
ROGER B. PORTER
RBP
SUBJECT:
Expiration of the Clean Air Act and Other
Environmental Statutes
At this morning's senior staff meeting a question came
up regarding what would happen if the Clean Air Act Amendments
were not passed in the lame duck session. Since the meeting
I have discovered the following.
Most environmental statutes have multi-year funding
authorizations. The statutes do not have sunset provisions.
Thus, the regulatory provisions are not affected by the
expiration of the funding authorization. The Environmental
Protection Agency and the Department of Justice continue to
enforce environmental laws and regulations even if the Congress
fails to authorize expenditures. The appropriations committees
historically continue to fund environmental programs and, absent
a point of order, funds are provided.
The Clean Air Act has already received funds in the HUD-
Independent Agencies appropriation bill which passed in this
session of the Congress. Thus, failure by the Congress to
reauthorize the Clean Air Act will not affect enforcement of
the regulatory provisions.
THE WHITE HOUSE
WASHINGTON
December 2, 1982
MEMORANDUM FOR EDWIN MEESE III
EDWIN L. HARPER
FROM:
ROGER B. PORTER
RBP
SUBJECT:
Contract Sanctity
Conferees will meet on Tuesday, December 7, to resolve the
differences between the House and Senate versions of the
Commodity Futures Trading Act of 1982. An issue of primary
concern to the Administration is the contract sanctity provision
contained in the Senate bill.
Senator Durenberger succeeded in attaching to the Senate bill an
amendment which would prohibit the President (except when he
declares a national emergency or Congress declares war) from
abrogating contracts for the foreign sale of agricultural
commodities, provided the contracts were entered into before
the announcement of export restrictions and delivery was called
for within 270 days of the date of the contract. A motion to
table the Durenberger amendment failed by a vote of 27 to 66.
The State Department proposes to send a letter to the conferees
outlining the Administration's opposition to the Durenberger
amendment. The draft letter presents a sound foreign policy
argument against impairing the President's flexibility to respond
to aggressive behavior by other countries. However, it fails to
make the point that is likely to carry the most weight with the
conferees who are members of the House and Senate Agriculture
Committees. Enacting the Durenberger language will remove the
incentive for the Soviets to negotiate a new long-term grain
agreement that obligates them to buy more grain from the U.S.
The Administration's outright opposition to the Durenberger
provision on foreign policy grounds probably will not be
sufficient to get the Senate conferees to retreat from their
position on contract sanctity. The House conferees are expected
to recede to the Senate on the Durenberger language. Therefore,
unless some accommodation is reached, the President is likely to
be confronted with an unacceptable bill that could well be
veto-proof. A veto (or pocket-veto) would invite intense
reaction from farmers who have made contract sanctity their
battle cry.
One strategy for reducing the chances of an unattractive
confrontation on this matter would be to communicate to the
conferees that:
The Administration is prepared to enter into negotiations
on a new grain agreement with the Soviet Union this summer;
Enacting the Durenberger language would remove any
incentive that the Soviets may have to join in such
negotiations.
If the conferees are truly interested in assisting the
Administration in its pursuit of increased agricultural
trade with the Soviet Union, they should reject the
Senate's contract sanctity provision.
Other alternatives for avoiding a confrontation include:
Extending the Soviet delivery assurances that lapsed on
November 30 for 30-60 days in return for the conferee's
dropping the Durenberger language.
Encouraging the conferees to couch the contract sanctity
provision in "sense of the Congress" language.
OPD memos
THE WHITE HOUSE
WASHINGTON
June 27, 1982
MEMORANDUM FOR JAMES A. BAKER III
FROM:
ROGER B. PORTER
SUBJECT:
Meeting with the President on the U.S.-U.S.S.R.
Grain Agreement - June 28, 1982
On Monday, June 28, 1982, at 2:00 p.m. the President is sched-
uled to meet with the Cabinet Council on Food and Agriculture to
discuss whether to commence negotiations with the Soviet Union for
a long-term grain agreement.
Like most interesting policy issues, the decision of whether
to resume negotiations involves a host of considerations. This
issue is at the intersection of foreign, domestic, and economic
policy.
The issue paper circulated last Friday outlines the princi-
pal facts and alternatives along with their advantages and dis-
advantages. This brief memorandum supplements that paper and
attempts to highlight five considerations that I find useful in
thinking about the issue. They involve both substance and per-
ceptions.
1. Two past presidential actions and statements will importantly
shape the contour of this decision.
In December 1981, in the wake of the imposition of martial
law in Poland, the President announced a series of sanc-
tions against the Soviet Union including postponing nego-
tiations for a long-term grain agreement.
On March 22, 1982, in his most important agricultural
address since becoming President, Ronald Reagan outlined
his export policy. His most noteworthy announcement
(which I am told isnow painted on the side of every
barn in the Midwest grain belt) was that he would not
embargo (read restrain exports) grain shipments to the
Soviet Union except in the case of a total embargo on
all U.S. trade with the Soviets.
O
Thus, if the President approves resuming negotiations the
Europeans will perceive such a move as easing the sanctions
imposed last December.
But, if the current agreement is allowed to expire on
September 30, there will be no effective restraint on
Soviet purchases in U.S. grain markets.
-2-
The President's March 22 statement leaves little room for
affecting Soviet behavior in U.S. grain markets in the
absence of a total trade embargo, a highly unlikely event.
2. Substantively, whatever decision is made will likely affect
U.S. total grain exports little in the short-term, but could
affect the incentives for other countries to expand their
grain production over the longer term.
Current world grain stocks are high and the prospects for
a good worldwide harvest are good. We are not dealing
with a shortage situation, as in 1975.
The Soviets have already diversified their sources since
the 1980 embargo entering into several long-term agreements
with various countries. They should be able to get most
of what they want without having to rely on the U.S.
The problems of Soviet agriculture are legion as I tried
to point out in the issue paper circulated on Friday.
But the fact that the Soviets have had three bad harvests
in succession does not guarantee that this pattern will
persist.
They have historically had an average of one bad harvest
every three years.
The important question, in the short-term, is what effect
having a grain agreement would make on total Soviet pur-
chases. If we have an agreement that requires the Soviet's
to purchase 12 million tons, and they would have purchased
at least 12 million tons without an agreement, then such
an agreement does not increase their total demand or total
purchases on world markets.
Effectively, the grain trade is a world market. If the
Soviets buy from others, then we will end up selling to
third countries, in the short term.
However, an agreement can influence export trading patterns
in the longer-term. If countries believe that they can
get a secured, guaranteed part of the Soviet market (as
Canada and Argentina seem to believe, with good reason),
then they are likely to increase their production in
future years, thereby increasing world production. Thus,
in the longer-term, who gets the Soviet market can make a
real difference.
3. The grain agreement is a major issue in the agricultural com-
munity, quite possibly the major issue for this year. This
-3-
issue has seriously damaged the two immediate predecessors
of President Reagan (Carter and Ford) in the farm community.
The agriculture community, by whatever measure, is in
difficulty. Farm income is down sharply. Relatively
low prices (for wheat and feedgrains), increasing costs,
and high interest rates, have hurt farmers.
Among those in the agricultural community grain producers
are the least well off. Livestock producers, dairy far-
mers, and cotton and tobacco growers are doing relatively
better.
The administration's response has been to oppose bailout
measures and to emphasize that we are supporting an aggres-
sive export policy. This was the heart of the President's
March 22 statement.
Our position on the negotiation of a long-term grain agree-
ment is being watched closely in the agricultural community
and farmers are viewing it a something of a litmus test
to test the administration's commitment to an aggressive
export policy.
4. The Europeans would prefer that we not sign a long-term agree-
ment with the Soviets and will likely expend much rhetoric
on the issue, but are less likely to fall on their sword on
this question.
The current agreement does not involve granting the Soviets
any credits. The agreement forces the Soviets to buy our
grain with hard currency at world market prices.
The alternative to an extended or renewed grain agreement
is not to deny the Soviets U.S. grain. In the absence of
an agreement the Soviets will be free to purchase all the
U.S. grain they want. The Europeans do not expect the
President to go back on his March 22 statement. They
all have agricultural communities that they must pay
attention to as well.
5. The timing of this issue could hardly be worse. The June 18
pipeline sanctions decision and Secretary Haig's resignation
have focused much attention on this area.
This is not a good time to make a decision. And there is no
imminent action forcing event. The current agreement extends
until September 30. There is considerable merit in the Presi-
dent taking this under advisement.
- 4 -
I am leaving this afternoon for an early Monday morning
address in Minneapolis but will be back in Washington in time
for the 2:00 p.m. meeting. I will call as soon as I return in
the event that you have any questions.
As you can tell three worries dominate my thinking on this
issue:
1. That there is the potential for real political damage
in the traditionally Republican farm community if the farmers
feel they have once more had their interests sacrificed for
foreign policy objectives.
2. That the Soviets, who are shrewd traders and have always
sought to get the best buys on international markets by the tim-
ing of their purchases (witness 1972), will prove difficult in
a situation where they are effectively unrestrained either
because there is no agreement or because of the March 22 export
policy statement.
3. That over the long-term, the U.S. could simply become
the residual supplier for the lucrative Soviet market and that
the attraction of that market may well stimulate greater pro-
duction in other countries. Rather than serving as the world's
most aggressive and successful grain exporters, we might well
become to an even greater extent than now the holder of the
world's grain stocks.
CM/242
ISSUE PAPER
U.S.-U.S.S.R. GRAIN AGREEMENT
Issue
The current U.S.-U.S.S.R. Grain Agreement will expire on
September 30, 1982. The Administration must decide whether it
wants a formal arrangement (and, if so, what kind) to govern
U.S.-U.S.S.R. grain trade after September 30.
I. Background
U.S.-U.S.S.R. Grain Trade Prior to 1975. An unfavorable
climate, poor soil, backward technology, and an extremely
inefficient agricultural system make periodic crop failures in
the Soviet Union a virtual certainty. As a result, the Soviets
have, during the last twenty years, imported increasing amounts
of grain to accommodate their domestic needs.
Soviet purchases from the U.S. were relatively modest until
1972, when the prospect of a major crop failure prompted them
to buy, over a two to three month period, 19 million metric
tons (mmt) of U.S. grain, including one-fourth of the total
U.S. wheat crop. The Soviets made their purchases quietly and
early, before prices adjusted to the sudden increase in demand.
The Soviets also were able to capitalize on USDA's wheat export
subsidy program and a recently negotiated credit arrangement.
These circumstances, as well as the domestic market disruption
caused by the massive grain purchases, led critics to label the
U.S. sales as the "great Soviet grain robbery."
The U.S.-U.S.S.R. Grain Agreement. The summer of 1975 brought
new reports of a looming Soviet crop failure. These reports,
coupled with the desire to avoid a repeat of the 1972 scenario,
prompted the Ford Administration to suspend grain sales to the
Soviet Union until an arrangement could be worked out that
would prevent Soviet disruption of U.S. domestic markets and
guarantee U.S. farmers a reasonable share of the Soviet market.
The ensuing negotiations with the Soviet Union produced an
agreement with the following provisions:
2
The Soviets agreed to purchase 6 mmt of U.S. wheat and
corn, in approximately equal proportions, during each of
the five years covered by the agreement;
The Soviets can purchase up to 2 mmt more of U.S. grain
during any year without consultations with the U.S.;
The U.S. agreed not to embargo exports of up to 8 mmt of
grain to the Soviet Union;
The Soviets are required to consult with the U.S. (to
determine a higher supply level) before buying more than
8 mmt of grain in any given year;
There is an escape clause for the U.S. in the event of a
major U.S. supply shortage;
Soviet purchases must be made at prevailing market prices
and in accordance with normal commercial terms.
The Soviets agreed to ship the grain under the terms of
the U.S.-U.S.S.R. Maritime Agreement;
The Soviets are required to space their grain purchases
and shipments as evenly as. possible over each 12-month
period.
Since the agreement, there has been greater stability in world
grain trade and in Soviet purchasing patterns. Under the
agreement, the U.S. has expanded its share of the Soviet
market (see Appendix). Over this period, Soviet demands for
grain have increased more rapidly than their production,
resulting in a higher level of Soviet grain imports.
The Soviet Grain Embargo of 1980. On January 4, 1980, in
response to the Soviet military invasion of Afghanistan,
President Carter cancelled contracts for the sale of 13.5 mmt
of U.S. corn and wheat to the Soviet Union. The U.S. also
denied the Soviets access to an additional 3.5 mmt of grain
which had been offered to, but not yet purchased by, the
Soviets. Finally, shipments of soybeans, broilers, and some
other agricultural products were halted.
The Soviets were able to minimize the effects of the embargo by
drawing down their grain stocks and by increasing grain,
soybean, rice, flour, and meat imports from Argentina, Canada,
Australia, and the European Economic Community.
3
The Soviets have since entered into new long-term purchasing
agreements with Argentina, Brazil, Canada, Hungary, and
Thailand, in an attempt to diversify their sources of supply,
resulting in a declining share of the Soviet market for U.S.
farmers.
In April 1981, President Reagan lifted the Soviet grain
embargo. This was followed by an agreement in August to extend
the expiring U.S.-U.S.S.R. grain accord for an additional year,
through September 30, 1982. In October 1981, the U.S. offered
the Soviets an additional 15 mmt of grain, raising to 23 mmt
the amount of U.S. grain available to the Soviets during fiscal
year 1982. To date, the Soviets have purchased a total of
13.9 mmt of U.S. wheat and corn.
U.S. Sanctions Against the Soviets in the Aftermath of the
Polish Declaration of Martial Law. Discussions concerning
negotiation of a new U.S.-U.S.S.R. long-term grain agreement
were under way within the Administration when the Polish
government declared a state of martial law in December 1981.
When the Soviet Union failed to respond to U.S. urgings to help
restore basic human rights in Poland, the President announced a
number of sanctions against the Soviets, including postponement
of negotiations on a new grain agreement and suspension of
negotiations on a new maritime agreement.
II. Discussion
Soviet Import Demands. Soviet grain production has declined
sharply during the past three years, after more than a decade
of steady growth. Following a record crop of 237 mmt in 1978,
the Soviet harvest fell to 179 mmt in 1979, 189 mmt in 1980,
and reportedly to 158 mmt in 1981, nearly one-third below
target. To avoid massive shortages, the Soviets have imported
more than 100 mmt of grain since June 1979. During the
marketing year ending this June, Moscow is expected to import a
record 45 mmt of grain.
Soviet hard-currency outlays this year for all agricultural
commodities -- including grain, other feedstuffs, meat, sugar,
and vegetable oil -- will probably reach some $12 billion, up
about $1 billion from last year, and a sharp increase from the
roughly $8 billion spent in 1980. Altogether, food imports now
account for roughly 40 percent of total Soviet hard-currency
purchases.
Even with a strong recovery in domestic grain production,
Moscow will continue to import large amounts of grain, an
4
estimated 41 mmt of grain during the next marketing year
(July 1982-June 1983). The ultimate level of Soviet grain
imports during the next marketing year will depend on:
The size of the 1982 Soviet grain crop. USDA recently
reduced its projection for the 1982 Soviet grain crop
from 200 to 185 mmt;
The extent to which the Soviets decide to maintain or
expand livestock inventories;
Hard-currency constraints. Increasing Soviet hard-
currency constraints or a decision by Western bankers to
curtail short-term credits could hamper Moscow's import
intentions;
U.S.-U.S.S.R. trading relations;
The extent to which the Soviets will allow increased
dependence on imported grains; and
Soviet port capacity. Currently Soviet grain import
capacity is 45-50 mmt per year.
Soviet officials recently announced ambitious production goals
for grain and livestock for the remainder of the 1980s. They
also expressed their intention to reduce imports of foodstuffs
from capitalist countries. The history of Soviet agriculture,
however, suggests that achieving increased livestock production
goals will be extremely difficult if the Soviets reduce grain
imports.
U.S.-U.S.S.R. Grain Agreement in the Context of the World Grain
Market. It is doubtful that a long-term grain agreement
between the Soviet Union and the United States would have much
effect on the total U.S. share of world grain trade during the
next marketing year. However, the existence or absence of such
an agreement is likely to have a significant impact on world
grain trading patterns in future years. If, by failing to
negotiate a formal trading arrangement, the Soviets were
discouraged from satisfying their import demands in the U.S.
market, they would have to seek new sources of supply. The
prospect of servicing a consistently large buyer, such as the
Soviet Union, would prompt other exporting countries to further
increase their production. (Since the 1980 Soviet grain
embargo, Argentina and Canada have increased their grain
production by roughly 25 percent.) This increased production
would compete with U.S. grain in world markets, reducing the
U.S. share of the growth in global grain trade.
5
U.S. Foreign Policy Considerations. The U.S. is pursuing, and
encouraging its allies to pursue, a general policy of economic
restraint with the U.S.S.R., based upon fair burden sharing in
the West. A government-to-government agreement, especially one
perceived as newly-negotiated, that promotes grain exports,
would be regarded as an exception to that policy.
More specifically, negotiations with the Soviets would signal
an end to one of the President's measures against the U.S.S.R.
in response to the Poland crisis, undercutting the general
package of Poland-related sanctions, and impling that the
situation there has improved and that the U.S. is prepared to
adopt a "business as usual" stance. The Soviets could be
expected to promote this interpretation vigorously.
Resuming negotiations would conflict with the decision to
extend extraterritorially sanctions on oil and gas equipment
and technology. In the absence of real changes in Poland,
resuming negotiations would undermine U.S. credibility on
burden sharing and U.S. efforts to induce its allies to
exercise restraint in credit and trade arrangements with the
U.S.S.R.
U.S. Domestic Considerations. The U.S. farm sector is
experiencing serious economic hardships due to over-abundant
grain supplies, high interest rates, and a cost/price squeeze.
Pressure is being applied on the Administration to provide
various forms of assistance for farmers, including paid land
diversions, export subsidies, increased food assistance, and
higher price supports.
All these programs entail substantial budget outlays and lead
to increased government interference in agriculture. The
negotiation of a new long-term U.S.-U.S.S.R. grain agreement
that guarantees a larger share of the Soviet market for U.S.
farmers is virtually the only cost-free, market-oriented step
the Administration can take to help the farm community. It
is also consistent with the central feature of the Admini-
stration's farm policy -- increasing agricultural exports.
Farmers regard the U.S.-Soviet grain agreement issue as the
litmus test of the Administration's commitment to the
agricultural sector.
The U.S. maritime industry and labor share a common concern
over the arrangements for shipping grain from the U.S. to the
Soviet Union. In the absence of a new U.S.-U.S.S.R. maritime
agreement, U.S.-flag vessels would be effectively precluded
from participation in carrying grain to the U.S.S.R. Such a
development could have an adverse impact on the cooperation of
U.S. maritime labor in implementing any grain agreement.
6
III. Options
Option 1: Allow the existing U.S.-U.S.S.R. grain agreement to
expire without providing for any formal agricultural
trading arrangement between the two countries after
September 30, 1982.
Advantages:
Would be consistent with the President's policy of
postponing negotiations on a new long-term grain
agreement with the Soviets until there were
improvements in the Polish situation.
Could be presented as the Administration's attempt to
reduce government intervention in the international
marketing of U.S. agricultural products.
Disadvantages:
Would give the Soviets unrestricted access to the U.S.
grain market and could lead to disruption of the U.S.
grain market if the Soviets were to resume their
erratic purchasing behavior of the early 1970s.
-
Farmers would view lack of an agreement as eliminating
their chances for maximizing their share of grain
sales to the Soviet Union, and this would be perceived
as undermining the President's commitment to help
increase agricultural exports.
Could lead to the lowest level of U.S. grain exports
under any of the options, and thus increase federal
outlays for agricultural price support and production
control programs.
Would eliminate one more ongoing U.S.-U.S.S.R. tie,
and could affect the atmosphere of the upcoming U.S.- -
U.S.S.R. summit.
7
Option 2: Extend the existing U.S.-U.S.S.R. grain agreement
for one year.
Advantages:
Would maintain a formal trading arrangement that would
assure U.S. farmers of some access to the Soviet
market and insulate domestic users from possible
Soviet disruption of U.S. markets.
Would continue the status quo, thereby blunting the
charge that the U.S. was making a concession to the
Soviets in the absence of an improvement in the Polish
situation.
Would allow for a more positive trade atmosphere with
the Soviets than there would be in the absence of an
agreement, and thus would leave open the possibility
of entering into negotiations on a new long-term grain
agreement subsequent to an improvement in the Polish
situation.
Disadvantages:
Would be perceived by U.S. farmers as harming their
chances for maximizing their share of grain sales to
the Soviet Union and thus undermine the President's
commitment to help increase farm exports.
Could be perceived as a weakening of U.S. sanctions
imposed against the Soviets as a result of the Polish
situation, and conflicting with the recent decision on
sanctions on oil and gas equipment and technology.
Could undermine ongoing U.S. efforts to enlist the
support of its allies in restricting government
credits to the Soviet bloc.
8
Option 3: Extend for two or more years the existing
U.S.-U.S.S.R. grain agreement amended to provide
higher minimum purchase requirements.
Advantages:
Would insulate domestic consumers from possible Soviet
disruption of U.S. markets for a longer period.
Would provide U.S. farmers with a larger share of
grain sales to the Soviet Union and thus demonstrate
the President's commitment to increasing agricultural
exports.
Could promote U.S. foreign policy objectives by
increasing Soviet dependency on grain imports from
the U.S.
Disadvantages:
Would signal a U.S. retreat from the sanctions imposed
in response to the Polish situation and could undercut
our efforts to secure changes in the policies of the
Jaruzelski regime.
Would undermine ongoing U.S. efforts to enlist the
support of its allies iñ restricting government
credits to the Soviet bloc.
9
Option 4: Negotiate a totally new U.S.-U.S.S.R. grain
agreement.
Such an agreement might include four basic features:
1. A minimum purchase level for the grains covered under
the agreement. The minimum purchase level would be
adjusted each year on the basis of a two-year moving
average of actual Soviet grain purchases.
2. A "prior consultation level" -- expressed as a
percentage above the minimum purchase level --
beyond which the annual Soviet purchases could
not go, without prior consultation with the U.S.
3. A provision to encourage the Soviets to buy
value-added agricultural products.
4. A provision that any decision on supply availability
above the prior consultation level would require
commitments on both sides to purchase and sell
specific amounts.
Advantages:
Would achieve a greater integration of the U.S. and
Soviet trading systems
-
Would assure U.S. farmers a reasonable share of the
Soviet market, based on actual levels of grain trade.
Would force the Soviets to be more forthcoming with
respect to their buying intentions.
Disadvantages:
Would signal a U.S. retreat from the sanctions
imposed in response to the Polish situation, and
could undercut our efforts to secure changes in the
policies of the Jaruzelski regime.
Would require protracted negotiations that could
extend beyond the expiration of the current agreement.
Would provide the Soviets much greater opportunity to
press for stronger supply guarantee provisions.
APPENDIX
U.S. SOVIET GRAIN TRADE 1973-1982
Total USSR
US Grain
US Share of Total
Grain Imports
Exports to
USSR Grain Imports
(mmt)
USSR
(%)
(mmt)
FY 1973
22.5
14.1
63
FY 1974
5.7
4.5
79
FY 1975
7.7
3.2
42
FY 1976
25.6
14.9
58
FY 1977
8.4
6.1
73
FY 1978
22.5
14.6
65
FY 1979
19.6
15.3
78
FY 1980
27.0
8.3
31
FY 1981
38.8
9.5
24
FY 1982
45.0
17.8
40
(projected)
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"ocrText": "WITHDRAWAL SHEET\nRonald Reagan Library\nCollection: CICCONI, JAMES: Files\nArchivist: ggc/rfw\n[OFFice 3\nFile Folder: Memos -/Policy Development [1 of 2]\nDate: 2/1/99\nBox 9112 5\nDOCUMENT\nSUBJECT/TITLE\nDATE\nRESTRICTION\nNO. AND TYPE\n1. Memo\nBurleigh Leonard to Edwin Harper, Roger Porter Re:\n3/10/83\nPS\nFmHA Bailout (p5), 5p\nsonly\n2. Memo\nMichael Uhlmann to Edwin Harper Re: Pension\n2/28/83\nPS\nDiscrimination, 3p\n3. Memo\nEdwin Harper to James Baker, Edwin Meese Re:\n4/13/83\nPS\nN.Y. Handicapped Infants Regulation, 1p\nas\n10/18/00\nRESTRICTION CODES\nPresidential Records Act [44 U.S.C. 2204(a)]\nFreedom of Information Act [5 U.S.C. 552(b)]\nP-1 National security classified information [(a)(1) of the PRA].\nF-1 National security classified information [(b)(1) of the FOIA].\nP-2 Relating to appointment to Federal office [(a)(2) of the PRA].\nF-2 Release could disclose internal personnel rules and practices of an agency [(b)(2) of the\nP-3 Release would violate a Federal statute [(a)(3) of the PRA).\nFOIA].\nP.4 Release would disclose trade secrets or confidential commercial or financial information\nF-3 Release would violate a Federal statue [(b)(3) of the FOIA].\n[(a)(4) of the PRA].\nF-4 Release would disclose trade secrets or confidential commercial or financial information\nP-5 Release would disclose confidential advice between the President and his advisors, or\n[(b)(4) of the FOIA]\nbetween such advisors [(a)(5) of the PRA].\nF-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the\nP-6 Release would constitute a clearly unwarranted invasion of personal privacy [(a)(6) of\nFOIA].\nthe PRA].\nF-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of\nthe FOIA].\nC. Closed in accordance with restrictions contained in donor's deed of gift.\nF-8 Release would disclose information concerning the regulation of financial institutions\n[(b)(8) of the FOIA].\nF-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of\nthe FOIA].\nWITHDRAWAL SHEET\nRonald Reagan Library\nCollection: CICCONI, JAMES: Files\nArchivist: ggc/rfw\nFile Folder: Memos - Policy Development [1 of 2]\nDate: 2/1/99\nBox 9112\nDOCUMENT\nSUBJECT/TITLE\nDATE\nRESTRICTION\nNO. AND TYPE\n1. Memo\nBurleigh Leonard to Edwin Harper, Roger Porter Re:\n3/10/83\nP5\nFmHA Bailout (p5), 5p\n2. Memo\nMichael Uhlmann to Edwin Harper Re: Pension\n2/28/83\nP5\nDiscrimination, 3p\n3. Memo\nEdwin Harper to James Baker, Edwin Meese Re:\n4/13/83\nP5\nN.Y. Handicapped Infants Regulation, 1p\nRESTRICTION CODES\nPresidential Records Act [44 U.S.C. 2204(a)]\nFreedom of Information Act [5 U.S.C. 552(b)]\nP-1 National security classified information [(a)(1) of the PRA].\nF-1 National security classified information [(b)(1) of the FOIA].\nP-2 Relating to appointment to Federal office [(a)(2) of the PRA].\nF-2 Release could disclose internal personnel rules and practices of an agency [(b)(2) of the\nP-3 Release would violate a Federal statute [(a)(3) of the PRA].\nFOIA].\nP-4 Release would disclose trade secrets or confidential commercial or financial information\nF-3 Release would violate a Federal statue [(b)(3) of the FOIA].\n[(a)(4) of the PRA].\nF-4 Release would disclose trade secrets or confidential commercial or financial information\nP-5 Release would disclose confidential advice between the President and his advisors, or\n[(b)(4) of the FOIA].\nbetween such advisors [(a)(5) of the PRA].\nF-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the\nP-6 Release would constitute a clearly unwarranted invasion of personal privacy ((a)(6) of\nFOIA].\nthe PRA].\nF-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of\nthe FOIA].\nC Closed in accordance with restrictions contained in donor's deed of gift.\nF-8 Release would disclose information concerning the regulation of financial institutions\n[(b)(8) of the FOIA].\nF-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of\nthe FOIA].\nfor\nTHE WHITE HOUSE\nWASHINGTON\nApril 5, 1983\nMEMORANDUM FOR RICHARD G. DARMAN\nFROM:\nROGER B. PORTER\nRBP\nSUBJECT:\nReauthorization of the Civil Rights Commission\nThe attached materials, which reached me this morning, con-\ncern reauthorizing the Civil Rights Commission. I am informed\nthat the House Judiciary Committee has introductory hearings\nscheduled for Thursday, April 7. Congressman Sensenbrenner,\nwho is prepared to introduce the legislation for the Administra-\ntion, would like to have the bill for introduction prior to\nthe hearing.\nMike Uhlmann and Mike Horowitz have signed off on the\nattached transmittal message, bill, and fact sheet. They\nhave also provided a copy to the Counsel's Office. Ed Harper\nhas requested that you circulate this package as soon as\npossible.\nAttachment\nCC: Edwin L. Harper\nTHE WHITE HOUSE\nWASHINGTON\nApril 1, 1983\nMEMORANDUM FOR EDWIN MEESE, III\nEDWIN L. HARPER\nFROM:\nMichael M. Uhlmann\nSUBJECT:\nReauthorization of Civil Rights Commission\nI. Background.\nThe Civil Rights Act of 1957 established the Commission as an\nagency of limited duration, to expire after producing a final\nreport to Congress and the President. As the original and\nsubsequent expiration dates have approached, the Act has been\nperiodically amended to extend the Commission's life.\nUnder current law, the Commission will expire at the end of\nthis fiscal year. The President is on record as supporting\nextension.\nDon Edwards has stolen a march on us by introducing his own\nextension legislation. Markup is scheduled for April 7.\nThe Commission has forwarded its own proposed extension\nlegislation to OMB for clearance.\nIn cooperation with OMB, we have drafted proposed extension\nlegislation for submission by the President. If it is to\nhave any impact, it must be forwarded to the Hill no later\nthan April 5 so that it can be introduced in time for the\nmarkup.\nThis matter coincides with, and is likely to be subsumed in\nthe battle to confirm our forthcoming nominations to the\nCommission.\nII. Issues.\nO Length of extension. Our draft proposes a ten year\nextension (we had previously contemplated six). The Edwards\nbill and the CRC draft both propose a fifteen year\nextension.\nO Terms of office. Our draft provides for staggered six\nyear terms, with the President retaining his authority to\nnominate replacements at will. The CRC draft would also\nestablish staggered six year terms, but members could be\nremoved before their terms expired \"for cause\" only. Edwards\nhas announced that he will add a provision addressing this\nissue after consulting with civil rights groups. These\ngroups support either fixed terms or life tenure with removal\nonly for cause.\nO Subpoena authority. Our draft would not change the\nCommission's existing authority to subpoena persons or\ndocuments (the Commission is currently authorized to issue\nsubpoenas within a fifty mile radius of a Commission\nhearing). The CRC draft would give the Commission nationwide\nsubpoena power for documents. Such a provision is likely to\nbe added to the Edwards bill (although Arthur Flemming has\nargued that this is an issue the Commission's supporters had\nbest not open).\nIII. Analysis.\nThis is a key skirmish in the larger battle to confirm our\nfour impending nominations to the Commission.\nThe legislative aim of Edwards et al. is to \"grandfather in\"\nthe existing Commissioners and substantially increase their\ncapacity to make mischief. They will attempt to build a\nrecord, in moving their legislation, suggesting that the\nCommission must be protected against the Administration's\n\"onslaughts\" so that, when our nominations are made, they can\nbe characterized as \"there they go again\".\nIt is therefore essential that we not allow ourselves to be\nplaced in the position of reacting against Edwards'\nlegislation, but in favor of our own.\nEdwards' bill has received little, if any, publicity. Our\nown legislation (especially in view of the recent subpoena\nflap) would probably be widely publicized.\nRepublicans on the Subcommittee, particularly Sensenbrenner,\nare eager to take on the misuse of the Commission by its\ncurrent members and staff as a Government financed lobby for\nthe Left. They have, for example, added Checker Finn to\nthe witnesses who will appear on April 7. An Administration\nbill (which we would expect Sensenbrenner to introduce in the\nHouse) would enable them to emphasize that while they are\ncritical of the Commission's abuses, they are in favor of the\nCommission itself.\nRecommendations:\nO That the President forward the attached legislation to the\nHill.\nO That we immediately alert Sensenbrenner and other key\nallies of its contents.\nO That we retain flexibility to make changes in our\nlegislation in response to changing circumstances (e.g., if\nour four nominees are confirmed, the position of Edwards\nregarding issues such as lifetime tenure and removal for\ncause would change).\nO We should take steps now to assure that the Senate\nRepublican leadership recognizes the importance of all four\nof our nominees to the Commission, and is prepared to do\nbattle for them.\nAttached are drafts of (1) a transmittal message; (2) the\nbill itself; (3) a section-by-section analysis of the bill;\nand (4) a fact sheet.\nTO THE CONGRESS OF THE UNITED STATES:\nI am transmitting herewith the \"Civil Rights Commission\nReauthorization Act of 1983\".\nWe Americans have come to share a vision of the nation we\nwant to be: A nation in which sex, race, religion, color,\nnational origin, age, or condition of disability do not\ndetermine an individual's worth--or where he or she can\nwork, study, or live. We can be justly proud both of the\nprogress we have made toward realizing that ideal--and of our\nwillingness to recognize that progress remains to be made.\nIn my State of the Union Address on January 25 of this year,\nI emphasized the importance of the role the Commission can\nplay in assuring that we, as a nation, keep our statutory\ncommitments to fairness and equity for all Americans--and the\nnecessity to assure that the Commission is not allowed to\nexpire, as current law provides, at the end of 1983. In\nrecognition of that importance, the legislation I am\ntransmitting for your consideration would continue the\nCommission's important work through 1993.\nThe ten year extension I propose today would be the longest\nin the Commission's history. However, I believe it is\nnecessary to assure the continuity recuired for the effective\npursuit of the Commission's mission, while preserving the\noriginal Congressional intent that the Commission have a\nspecified purpose and duration.\nIn addition, I am proposing that future members of the\nCommission be appointed for specified terms, as is currently\nthe case with the Equal Employment Opportunity Commission and\nsimilar agencies. This will assure that the Commission's\nmembership is reviewed at the specified intervals, promote\ncontinuity and provide for the regular introduction of new\nperspectives to the Commission's work.\nFinally, I am proposing that the Commission's current\nauthorities and procedures be continued intact. The existing\nstatutory provisions have, since the Commission's founding,\nenabled the Commission to fulfill its unique function while\navoiding duplication of activities performed by the EEOC,\nDepartment of Justice, and other line agencies.\nI ask that this legislation be adopted quickly to avoid any\nuncertainty regarding the Commission's status and any\nresulting disruption in its important work.\nTHE WHITE HOUSE\nApril\n,1983\nA BILL\nTo amend the Civil Rights Act of 1957 to extend the life of\nthe Civil Rights Commission and for other purposes.\nBe it enacted by the Senate and House of Representatives of\nthe United States of America in Congress assembled, That this\nAct may be cited as the \"Civil Rights Commission\nReauthorization Act of 1983\".\nESTABLISHMENT OF TERMS FOR MEMBERS OF THE COMMISSION\nSec. 2. Section 101 of the Civil Rights Act of 1957\n(42 U.S.C. 1975) is amended to add the following at the\nconclusion of the section:\n\"(f) Members of the Commision will be appointed for a\nterm of six years except for the members first appointed\npursuant to this Act:\n(i) Two of such members, not affiliated with the same\npolitical party, shall be appointed for a term of two years;\n(ii) Two of such members, not affiliated with the same\npolitical party, shall be appointed for a term of four years;\n(iii) Two of such members, not affiliated with the\nsame political party, shall be appointed for a term of six\nyears.\nProvided that: Those members of the Commission who, on the\neffective date of this Act, are serving as members pursuant\nto appointments made under prior authority shall continue to\nserve until successors are nominated by the President and\nconfirmed by the Senate.\"\n\"(g) (i) A member of the Commission may continue to\nserve on the Commission after the expiration of the member's\nterm until a successor has been nominated by the President\nand confirmed by the Senate.\n(ii) Persons appointed to fill vacancies occurring\nother than by the expiration of a term of office shall be\nappointed only for the unexpired term of the member they\nsucceed.\"\nEXTENDING THE LIFE OF THE COMMISSION\nSec. 3. Section 104 (c) of the Civil Rights Act of 1957\n(42 U.S.C. 1975c (c)) is amended by striking out \"1983\" and\ninserting \"1993\" in lieu thereof.\nAUTHORIZATION OF APPROPRIATIONS\nSec. 4. Section 106 of the Civil Rights Act of 1957 (42\nU.S.C. 1975e.) is amended to read as follows:\n\"There are authorized to be appropriated $12,180,000 to carry\nout the provisions of this chapter for the fiscal year ending\nSeptember 30, 1984, and such sums as may be necessary for\neach of the following nine fiscal years.\"\nSection by Section Analysis\nSection 1 gives the short title of the proposed legislation,\n\"Civil Rights Commission Reauthorization Act of 1982\".\nESTABLISHMENT OF TERMS FOR MEMBERS OF THE COMMISSION\nSection 2 would amend section 101 of the Civil Rights Act of\n1957 (42 U.S.C. 1975) to add two new subsection at the\nconclusion of the section, (f) and (g). New subsection (f)\nwould provide for staggered terms of six years for the\nmembers of the Commission. To initiate the staggered terms,\nthe first six appointments pursuant to this legislation would\nbe made in three pairs. One member pair would be appointed\nto two year terms, another to four year terms, and a third\nmember pair to six year terms. Each pair of appointments\nwould be of persons \"not affiliated with the same political\nparty\" (the Civil Rights Act of 1957 requires that no more\nthan 3 members of the Commission be members of the same\npolitical party). Thereafter, all appointments would be to\nsix year terms (or, as provided in new subsection (g), where\nan appointee is succeeding or replacing a member whose term\nhas not expired, to the remainder of the term in question).\nPersons serving as members of the Commission upon enactment\nof this proposed legislation would continue to serve until\nsuccessors are nominated by the President and confirmed by\nthe Senate. New subsection (g) would provide that members\nmay continue to serve after the expiration of their terms of\noffice until a successor has taken office as a member of the\nCommission.\nEXTENDING THE LIFE OF THE COMMISSION\nSection 3 would extend the life of the Commission by ten\nyears by amending Section 104(c) of the Civil Rights Act of\n1957 (42 U.S.C. 1975c(c) ) to provide that the Commission will\nsubmit its final report to Congress and the President in 1993\nrather than 1983.\nAUTHORIZATION OF APPROPRIATIONS\nSection 4 would amend Section 106 of the Civil Rights Act of\n1957 (42 U.S.C. 1975e.) to authorize the appropriation of\n$12,180,000 for fiscal year 1984 and such sums as may be\nnecessary for each of the following nine fiscal years. This\nperiod coincides with the period of extension of the\nCommission's life in Section 3.\nPRESIDENT'S MESSAGE TO CONGRESS TRANSMITTING THE CIVIL RIGHTS\nCOMMISSION REAUTHORIZATION ACT OF 1983\nSummary\nPursuant to his State of the Union Address on January 25, the\nPresident today transmitted to the Congress a bill extending\nthe life of the Civil Rights Commission. The ten year\nextension provided for in the bill would be the longest in\nthe history of the Commission.\nThe President's Message reiterated his commitment to making\nAmerica \" the nation we want to be: A nation in which sex,\nrace, religion, color, national origin, age, or condition of\ndisability do not determine an individual's worth--or where\nhe or she can work, study, or live.' Americans II\ncan be\njustly proud both of the progress we have made toward\nrealizing that ideal--and of our willingness to recognize\nthat progress remains to be made\". The Civil Rights\nCommission, the President emphasized, can play an important\nrole\n\"\nin assuring that we, as a nation, keep our statutory\ncommitments to fairness and equity for all Americans.\nThe President's purpose in proposing an unprecedented ten\nyear extension is to \" assure the continuity required for\nthe effective pursuit of the Commission's mission--while\npreserving the original Congressional intent that the\nCommission have a specified purpose and duration\".\nBACKGROUND\n--The Civil Rights Act of 1957 established the Commission as\nan agency of limited duration, to expire after producing a\nfinal report to Congress and the President.\n--As the original and subsequent expiration dates have\napproached, the Act has been periodically amended to extend\nthe Commission's life.\n--Under current law, the Commission will expire at the end of\nthis fiscal year.\nSUMMARY OF PROPOSED LEGISLATION\nThe \"Civil Rights Commission Reauthorization Act of 1983\"\nwould:\n-Extend the life of the Commission through Fiscal Year\n1993.\n--Promote continuity and at the same time bring fresh\nperspectives to the Commission by providing that future\nmembers be appointed to specified terms, as is currently the\ncase with the Equal Employment Opportunity Commission and\nsimiliar agencies.\n--Authorize the appropriation of 12,180,000 for the\nCommission in FY 1984 and \"such sums as may be necessary\" in\neach of the following nine fiscal years; i.e., through 1993.\n--Continue the Commission's current authorities and\nprocedures intact.\nmemor\nTHE WHITE HOUSE\nWASHINGTON\nMARCH 10, 1983\nMEMORANDUM FOR EDWIN L. HARPER\nROGER B. PORTER\nFROM:\nBURLEIGH LEONARD\nSUBJECT:\nFmHA Bailout Legislation\nThe Senate Agriculture Committee and a House Agriculture sub-\ncommittee have reported legislation providing relief for FmHA\nborrowers. The bills -- S.24 and H.R.1190 -- are on fast\ntracks. There is very good reason to believe that some variation\nof a FmHA bailout bill could reach the President's desk.\nS.24. originally introduced by Senator Huddleston, would:\n1. require the Secretary of Agriculture, during the period\nbeginning on the date of enactment of the bill and end-\ning September 30, 1983, to permit family farmers with\neconomic emergency loans or FmHA farm loans, on request,\nto defer repayment of the loans, if the borrower can\nshow to the satisfaction of the Secretary that he has\nfollowed good management practices, is temporarily un-\nable to continue making payments on the loan due to\ncircumstances beyond his control, and has a reasonable\nchance of repayment of the loan after the deferral;\n2. require the Secretary, after a deferral period ends, to\nmake available to the borrower consolidation, reschedu-\nling, or reamortization of the deferred loan at an\ninterest rate not in excess of the interest rate on the\noriginial loan. (estimated costs: depending on length\nof deferral and level of participation, Treasury would\nhave to borrow $0-6 billion; long-term permanent cost:\n$0-2.4 billion);\n3. establish, that for any FmHA farm loan deferred, consol-\nidated, rescheduled, or reamortized by the Secretary,\nthe interest rate for the remaining balance and term of\nthe original loan cannot exceed the rate of interest for\nthe original loan (estimated costs: $200 million);\n4. raise the loan limits for FmHA farm operating loans as\nfollows--\n2\n(a) no insured loan could be made to a farmer that\nwould cause the farmer's total outstanding farm oper-\nating loans to exceed $300,000 (under current law, the\nfigure is $100,000); and\n(b) no guaranteed loan could be made to a farmer that\nwould cause the farmer's total outstanding farm oper-\nating loans to exceed $400,000 (under current law, the\nfigure is $200,000) (no cost).\n5. add $200 million to the amount authorized for insured\nfarm operating loans in fiscal year 1983, the additional\nfunds to be reserved for new borrowers (farmers who have\nnot received any operating credit from the Farmers Home\nAdministration since September 30, 1981) (estimated\ncosts: $200 million in additional lending authority);\n6. require that not less than 20% of the amounts authorized\nfor insured farm ownership and farm operating loans in\nfiscal year 1983 be made available for the low-income,\nlimited-resource farmer program, under which farmers who\nqualify for the program receive loans at a reduced rate\nof interest (estimated costs: $5 million);\n7. extend the discretionary economic emergency loan program\nthrough September 30, 1984, and provide an additional\n$600 million worth of insured economic emergency loans\nin fiscal year 1983. (estimated costs: $600 million in\nadditional lending authority; however, because program\nis discretionary there could be no cost if we can with-\nstand pressure to issue loans).\nH.R. 1190, introduced by Congressman Ed Jones and co-sponsored by\nCongressman Tom Coleman, would:\n1. require the Secretary of Agriculture, during the period\nbeginning with the date of enactment of the bill and\nending September 30, 1984, to permit borrowers with\neconomic emergency loans or FmHA farm loans, on request,\nto defer repayment of the loans for a one-year period\nbeginning on the date the deferral is approved, if the\nborrower can show that he has followed good management\npractices, is unable to continue making payments on the\nloan due to circumstances beyond his control, and has a\nreasonable chance to repay the loan after the deferral;\n2. require the Secretary, after a deferral period ends, to\nmake available to the borrower consolidation, reschedul-\ning, or reamortization of the deferred loan at an inter-\nest rate not in excess of the interest rate on the orig-\ninal loan. (estimated costs: $4-6 billion in short-\nterm Treasury borrowing depending on participation rate;\nlong-term permanent cost $1.2-2.3 billion);\n3\n3. increase from seven to fifteen years the time over which\nthe FmHA may reschedule and reamortize its operating\nloans and provide interest rates on such extended loans\nat the lower of the current or original rate (estimated\ncosts: $200 million);\n4. increase the limit on FmHA-insured operating loans from\n$100,000 to $200,000 and increase the limit on FmHA-\nguaranteed operating loans from $200,000 to $400,000 (no\ncost).\n5. provide an additional $200 million in FmHA-insured oper-\nating loans in fiscal year 1983, the additional funds to\nbe reserved for borrowers who have not received loans\nfrom FmHA since September 30, 1981 (estimated costs:\n$200 million in additional lending authority);\n6. require that at least 20% of FmHA's farm operating and\nfarm ownership loans in fiscal year 1983 be made to\nborrowers who qualify for reduced interest rates for\nlow-income, limited-resource farmers (estimated costs:\n$5 million);\n7. mandate operation of the economic emergency loan pro-\ngram, and provide an additional $600 million worth of\ninsured economic emergency loans (estimated costs: $600\nmillion in additional lending authority);\n8. allow farmers who got disaster emergency loans after\nDecember 15, 1979, to get follow-up loans during fiscal\nyears 1983-1984 (estimated costs: $1.2 billion in addi-\ntional lending authority per fiscal year; however no\npermanent cost as these loans are made at cost of money\nand repaid);\n9. establish that eligibility for disaster emergency loans\nwill depend on losses suffered by the individual appli-\ncant, not on whether the Secretary of Agriculture has\ndesignated the producer's home county as eligible for\ndisaster loans (estimated costs: would result in con-\nsiderable administrative costs and could increase the\nnumber of disaster emergency loans made).\n10. move authority to issue loan guarantees from FmHA county\nofficers into a special Guaranteed Farm Loan Program\nunit set up by FmHA in each state (small administrative\ncost).\nNeither of these bills merits the Administration's out-front\nsupport. However, there are differences between the two measures\nthat need to be appreciated.\nS.24's loan payment deferral provision applies for a shorter\n4\nperiod of time and gives the Secretary discretion to set the\nlength of an individual's deferral. Under a strict interpreta-\ntion of the provision, the deferral period could be limited to\nsuch an extent that few, if any, additional federal outlays would\nbe necessary. FmHA lawyers warn, however, that such a strict\ninterpretation may be difficult to defend before the courts,\nunless more explicit directives were provided in the legislative\nhistory of S.24. I have encouraged USDA to explore with friendly\nSenators the possibility of securing such directives.\nS.24 does not mandate the FmHA economic emergency loan program\nas does H.R. 1190. It merely provides the Secretary of\nAgriculture with discretionary authority to make such loans. The\neconomic emergency loan program is a poor program. It was de-\nsigned to address the credit needs of larger operators who could\nnot qualify for the regular FmHA farm loans. By administratively\nmodifying the definition of family farm in conjunction with an\nappropriate increase in the ceilings on FmHA insured and guaran-\nteed farm loans (such as those provided in both S.24 and\nH.R. 1190), the Administration could accommodate larger farmers\nand thus neutralize the constituency for the economic emergency\nloan program. If the economic emergency loan program is manda-\nted, we could be required to permit private lenders to dump any-\nwhere between $600 million and $1.2 billion of low quality loans\non FmHA.\nIt should be noted that a case is pending in a federal district\ncourt, the result of which could force FmHA to issue an\nadditional $600 million in economic emergency loans.\nFinally, S.24 refrains from extending subsequent loan eligibility\nfor those who received disaster emergency loans after December\n15, 1979, thereby avoiding the need to provide an extra $1.2\nbillion in lending authority in each of fiscal years 1983 and\n1984. Furthermore, S.24 does not require that the disaster\nemergency loan progrm be administered on an individual evaluation\nbasis. Such a requirement, as provided in H. R. 1190, would impose\nan administrative burden on FmHA that could bring its program\noperations to a standstill.\nThere are indications that Congress is anxious to ram an FmHA\nbailout proposal into law. Secretary Block has sought to blunt\nsuch enthusiasm by sending to the Hill a letter which outlines\nthe grounds upon which he would recommend a veto to the\nPresident. The letter explains that anyone of four provisions\nwould prompt a veto recommendation from the Secretary: mandatory\nloan payment deferral; mandatory economic emergency loan program;\nsubsequent loan eligibility for those who received disaster emer-\ngency loans after December 15, 1979; and individual designation\nfor disaster emergency loans. The letter leaves enough wiggle\nroom to permit the President to sign FmHA legislation as substan-\ntiation of his State of the Union pledge to work with farmers on\na case-by-case basis to get them through hard economic times.\n5\nI think it will require White House involvement either to pre-\nvent any FmHA bailout legislation from getting to the President's\ndesk or to get an FmHA bill that the President can sign. It may\nbe wise to get that involvement going now while we still have a\nchance to shape events on Capitol Hill. We can ill-afford being\nput in the dilemma of choosing between bad and, in this case,\nexpensive legislation and a strong political constituency, as we\nwere on the contract sanctity issue.\nThere are things that could be done to help prevent a veto con-\nfrontation with Congress on FmHA bailout legislation:\n0\nSenator Domenici could be prevailed upon to object to\nS.24 on budgetary grounds until mid to late April,\ngiving us enough time to develop support for a substi-\ntute similar to legislation introduced by Senator\nCochran. Senator Lugar may be willing to carry the\nwater for us on the substitute.\nO\nWe could step up efforts to keep H. R. 1190 bottled up in\nthe House Agriculture Committee. Congressman Madigan to\ndate has been a real trooper in leading opposition to\nthe bill. His help should be acknowledged by the White\nHouse and his position should be reinforced in any way\npossible.\nO\nA FmHA supplemental (if it is necessary) could be sent\nto the Hill in a timely fashion so as to avoid giving\nsupporters of S.24 or H.R. 1190 any cause to question\nour commitment to FmHA borrowers.\nO\nFarm groups could be urged by the White House to oppose\nFmHA bailout legislation.\nO\nWe could increase public awareness of our efforts to\ndate to help FmHA borrowers secure needed credit, there-\nby countering our image as having no compassion.\nMy point is that it is not too soon for the legislative strategy\ngroup to map out a course of action on FmHA bailout legislation.\nTo simply say that we oppose such legislation may not be enough\nto stem the tide of support for the legislation.\nOPD memos\nTHE WHITE HOUSE\nASHINGTON\nMarch 29, 1983\nMEMORANDUM FOR EDWIN MEESE III\nJAMES A. BAKER III\nFROM:\nROGER B. PORTER\nRBP\nSUBJECT:\nConservation PIK\nAS requested at this morning's senior staff meeting I\nhave had our staff look into the Washington Post story that\nUSDA is considering a program which would give farmers free\nsurplus grain as an extra incentive to conserve eroding\ncropland.\nOur inquiries at the Department confirm that USDA is\nconsidering such a program. Since such a program could have\nsubstantial budget implications as well as involve the inter-\nest of other departments and agencies this seems like an issue\nthat merits Cabinet Council consideration.\nI have asked Danny Boggs, Executive Secretary of the\nCabinet Council on Food and Agriculture, to discuss this\nwith Secretary Block and report to me if there is any prob-\nlem.\nA brief memorandum describing the options currently\nunder review at USDA on this issue is attached.\nAttachment\nCC:\nDavid A. Stockman\nCraig L. Fuller\nRichard G. Darman\nEdwin L. Harper\nTHE WHITE HOUSE\nWASHINGTON\nMARCH 29, 1983\nMEMORANDUM FOR EDWIN L. HARPER\nROGER B. PORTER\nFROM:\nBURLEIGH LEONARD\nBL\nSUBJECT:\nConservation PIK\nWard Sinclair's article in the March 29 edition of the Washington\nPost accurately indicates that USDA is considering a program\nwhich would give farmers free surplus grain as an extra incentive\nto conserve eroding cropland.\nWhile no final proposal has been submitted to the Secretary as of\nyet, an intradepartmental task force has been putting together\npayment-in-kind conservation options that could be used to\ncapitalize on the soil conservation opportunities presented by\nthe PIK production control program.\nMost of the acreage to be removed from production under the PIK\nprogram is marginal land with high susceptibility to erosion.\nThe provisions of the PIK program require that this land be put\ninto conservation usages - - such as cover crops - - in order to\nminimize soil loss due to water and wind erosion while the land\nis out of production. With their land already diverted and\nprovided adequate incentives were available, some farmers could\nbe encouraged to put their diverted land into long-term\nconservation usages such as permanent grass and trees. Other\nfarmers could be encouraged to terrace their land or put in\ngrassed waterways so that when their diverted land was put back\ninto production it would be better protected from soil erosion.\nThe USDA task force is considering a number of options, including\nthese approaches:\nO\nFarmers who agree to permanent conservation programs\nfor their farms might get federal surplus grain instead\nof or as part of federal cost-sharing money currently\navailable under USDA conservation programs;\nO\nFarmers already in the PIK program might be offered a\nbonus of 2 or 3 percent more in surplus commodities if\nthey agree to carry out a permanent conservation plan.\nThe task force envisions a ceiling on the in-kind conservation\npayments of $250 million worth of commodities, as compared to the\nroughly $8 billion worth of commodities distributed under PIK.\nout of the farmer-held reserve in the\nUSDA in order would to have have to access bid commodities to sufficient commodities for use\nconservation program.\nCochran has introduced legislation, S. 843, which\nSenator authority for cash or in-kind payments to encourage\nprovides farmers to use conservation practices. Given the questions being\nraised about the Administration's commitment to conservation\nprograms (due primarily to significant budget cuts in USDA's\nconservation programs), USDA probably would want to support such\nlegislation should it decide to pursue this son-of-PIK\nconservation approach.\nThis subject has not been discussed with OMB nor has it been\ninserted into the cabinet council process. It is regarded by\nUSDA as an \"in-house\" matter.\nmemos\nTHE WHITE HOUSE\nWASHINGTON\nMarch 28, 1983\nMEMORANDUM FOR JAMES A. BAKER, III\nEDWIN MEESE III\nMICHAEL K. DEAVER\nCRAIG FULLER\nDAVE GERGEN\nFAITH WHITTLESEY\nFROM:\nEDWIN L. HARPER\nSUBJECT:\nBlack Appointees\nMel Bradley has been meeting with black appointees in the\nAdministration and has prepared the first summary report on these\nmeetings. I think you may find some of his conclusions of\nparticular interest.\nMel will continue to hold these meetings and report back from\ntime to time. If there are specific topics that you would like\nhim to test, feel free to contact him directly.\nAttachment\nMEMORANDUM\nTHE WHITE HOUSE\nWASHINGTON\nMarch 23, 1983\nFOR:\nED HARPER\nFROM: MEL BRADLE)\nSUBJ: Meeting With Black Appointees\nOn March 4 and March 14, L completed the first round of meetings\nwith Black political appointees who serve in full time positions\nat significant levels within the Administration! The primary\npurpose of the meetings was to seek to establish a method of\nkeeping them informed so that they might better serve the\nPresident. Perhaps more than any others within the\nAdministration, Blacks, if kept abreast of actual developments,\ncan do more as a group to dispel the myth that the Administration\nis pro-rich, anti-Black and is not first and foremost about the\nbusiness of creating conditions in which all not just a few\nAmericans can prosper. This is true largely because Black\nappointees tend to be in constant contact with one or more of the\nconstituencies to whom it is important to correct the\nmisperception. In addition to performing their regular\nresponsibilities, Black appointees tend to spend a considerable\namount of time speaking to the concerns of potential as well as\nactual friends and supporters and others of the Black community.\nWe agreed that\n(1) Consistent with available time and staff resources 4 would\nseek to assist in keeping them abreast of significant and\npertinent policy developments and accomplishments;\n(2) We would periodically hold additional informal meetings for\nthis purpose and for the purpose of their informing each\nother of pertinent developments;\n(3) They would incorporate the latest information regarding\ncivil rights accomplishments, accomplishments regarding the\neconomy, myth dispelling information, etc. in their public\nspeeches and other public contacts; and\n(4) They would provide feedback as to public reaction to this\nand other activities of the Administration.\n- 2 -\nThere was outspoken unanimity that we may not be taking advantage\nof the potential gains available through a special communications\neffort directed to the Black press. The gist of the theory put.\nforth was that, unlike the general press, the Black press is\n;\neager for all news relevant to Blacks and therefore would tend to\nprint all, rather than just the negative or sensational.\nMEMORANDUM\nford memos\nTHE WHITE HOUSE\nWASHINGTON\nFebruary 28, 1983\nFOR:\nEDWIN L. HARPER\nFROM:\nMICHAEL M. UHLMANN\nSUBJECT:\nLegislative Package on Pension Discrimination\nYou stated last week that you wanted the sex discrimination\ninsurance package readied for transmission to The Hill by March\n8, the timing to coincide with the President's meeting with\nRepublican Congresswomen,. For the reasons set forth below, I\nthink it would be ill-advised to transmit legislation at this\ntime.\nThere 1S substantial agreement in the CCLP working group for\nincluding the following elements in a legislative proposal:\n(1) Equalize pension benefits by prohibiting gender-based\nactuarial tables on a prospective basis.\n(2) Protect older women by requiring spousal consent before\nsurvivor benefits could be waived.\n(3) Protect younger women by lowering to 21 years the age at\nwhich workers must be permitted to participate in a\npension plan (i.e., start earning credits).\n(4) Neutralize the adverse consequences of taking maternity\nleave by providing that no break in service would occur.\nThere is no major controversy on the last three items, which have\nbeen incorporated in one form or another in various proposals now\npending on The Hill. By the same token, none of the three is\ndeemed to be of earth-shaking importance.\nThe equal-benefits proposal will be controversial, and by\nannouncing it at this time, chances are far greater that we will\nbe jeered rather than cheered. Consider:\nO\nBecause our proposal does not address the non-pension\nareas of insurance (and we do not now have the\ninformation to make an assessment), it will be criticized\nas a pale imitation of H.R. 100, which appears to promise\nso much. There is no reason whatsoever for any women's\ngroup to support anything less than H.R. 100 at this\ntime. Even if some were disposed to say nice things (why,\nI do not know), they would be effectively prevented from\ndoing so by their sister organizations, which in the\nspirit of all ideological interest groups would condemn\nany departure from the \"party line\". It must not be\nforgotten that the women's organizations compete with one\nanother for leadership of the movement. That competition\nis measured not only in terms of ideological purity, but\nin terms of membership and fund-raising. They have far\nmore to gain in condemning rather than praising our pale\nimitation of H.R. 100. In short, proposing legislation\nof the sort we have in mind at this point could have\nexactly the opposite effect of the one you seek.\nThe foregoing is a particularly likely outcome because\nour prospective solution would be criticized by women's\ngroups as a \"retreat\" from our petition in Spirt. Our\nmemorandum in support of Ms. Spirt did not specifiy the\nform of relief required by Title VII, but EEOC\nparticipated below on the question of relief in support\nof retroactivity. Women's organizations have\ngratuitously assumed that the prospective/retroactive\nquestion has already been settled in their favor. By\ncontrast, the dominant position within the Administration\nis that Manhart is open on this point. In any event,\nbecause our brief in Spirt did not address the issue, we\nat least have the benefit of ambiguity at the moment.\nComing out for prospective relief in legislation now\nwould open us to severe criticism that we are offering\nless than what is now available under EEOC regulations\nand certain lower court decisions.\nLabor, Justice, Treasury, and EEOC strongly concur in this\njudgment, and believe we should keep our powder dry for the\ntime-being. The real debate on H.R. 100 and similar legislation\nis only now beginning to heat up. Until recently, it's been\npretty much a case of being for the bill or against \"women's\nrights\". But as more and more females discover what the\nelimination of gender distinctions in insurance will do to their\npremiums, and as the likes of Mayor Koch weigh in against the\nbill's adverse impact on public employee pension funds, the\npolitics of this issue are going to change, and may change\nsharply.\nIt is yet too early to hazard anything more than a guess, but\na good one is that H.R. 100 as it now stands will not emerge from\nCongress. A premature entry onto the battlefield by the\nAdministration, however, will invite severe criticism from those\nwho still believe that the bill is alive and well, place us\npermanently on the defensive, and make us a convenient scapegoat\nif the bill undergoes substantial change for reasons wholly\nbeyond our control.\nAlternative Scenario for March 8\nRather than sending legisltion up now, I would propose the\nfollowing script for March 8:\n(1) Present to the Congresswomen a detailed summary of our\nefforts on behalf of women to date. This would include, but need\nnot be limited to\n-- information on personnel\nsummary of 50-States Project (they issued their report\nlast month)\nsummary of Legal Equity Task Force (this is the\nExecutive Order drill to review federal statutes and\nregulations)\n(2) Present a detailed breakdown of the Economic Equity Act,\nwhich shows that the greater part of the original Act has already\nbeen enacted with our support.\n(3) Reiteration of the President's concerns on pension\nequity, giving more detail than the SOTU, but drawing up short of\nannouncing a specific package. Bottom line: as we pledged in\ntestimony last week, we will work with Congress to produce\nmeaningful legislation this year.\n(4) Have the President announce his plans to create a\npresidential commission to study and report on the effects of\neliminating gender-based actuarial tables in all forms of\ninsurance other than pensions. Put the Commission on a short\nhook, e.g., six months, and postpone any legislative proposal on\nthis front until after the Commission reports.\n1:30\nTHE WHITE HOUSE\nToday\nWASHINGTON\nApril 14, 1983\nTO: JAB III\nRE: Infanticide Meeting Today\nAt 1:30 today, a meeting will be\nheld to discuss a recent lawsuit\nabout infanticide. This is a\ncomplex case, and has a number\nof pitfalls that were not apparent\nwhen Ed Harper first raised this\nthe other day in senior staff.\nI've attached a memo that Mike\nUhlmann has prepared on the sub-\nject. It discusses some of the\nkey issues, and explains why our\ndecision in this case could have\nimplications beyond the issue of\ninfanticide alone.\nI made sure Fielding was sent\nmaterials on the issue, and left\na message yesterday suggesting\nthat he look at this carefully.\nSorry I won't be here.\nJC\nMEMORANDUM\nTHE WHITE HOUSE\nWASHINGTON\nApril 13, 1983\nFOR:\nEDWIN L. HARPER\nFROM:\nMICHAEL M UHLMANN\nSUBJECT:\nHandicapped Infants Regulation and\nMedicare/Medicaid as Federal Financial Assistance\nThe Problem\nJustice and HHS are at an impasse over the issue of whether\nMedicare and Medicaid constitute federal financial assistance.\nThis issue is now presented squarely in litigation against our\nhandicapped infant regulation in the Southern District of New\nYork. (In the similar D.C. case pending before Judge Gesell,\nplaintiff medical groups did not raise this issue.) The district\njudge in New York has set a preliminary injunction hearing for\nMonday, and our brief is due Friday. Richard Willard of Justice\nbelieves we can avoid taking a position on this issue in the\nbrief, but we must be ready with an answer at the hearing on\nMonday.\nThus far, we have kept the HHS-DOJ debate over the issue\nlow-key, to avoid any adverse public flare-ups over the civil\nrights implications.\nThe non-discrimination requirement of Section 504 of the\nRehabilitation Act of 1973 applies to any program or activity\nthat receives federal financial assistance.\nThe issue therefore implicates not only the anti-infanticide\nregulation, but every federal civil rights scheme that is\ntriggered by receipt of federal financial assistance: race\ndiscrimination, sex discrimination, handicap discrimination. Any\nchange in the scope of coverage of this panoply of regulations is\nobviously fraught with controversy.\nArguments that Medicare and Medicaid should NOT be considered\nfederal financial assistance to hospitals (as articulated by\nCivil Rights Division of Justice):\nFederal Medicaid payments are made to the states, not to\nthe health care providers; hospitals participating in\nMedicaid receive financial assistance not from the\nfederal government but from the states.\nFederal Medicare payments are financial assistance to\nelderly patients, not to hospitals.\n-2-\n-- As with student loans, a federal payment for the\nbenefit of an individual, which can be used at any\ninstitution the individual chooses, should not bring\nthe institution under federal control.\n-- Medicare is analogous to food stamps, which are not\nand should not be considered federal financial\nassistance to grocery store chains.\n-- Moreover, Medicare is a federal funding program for\nthe elderly, and a hospital's receipt of Medicare\nshould not subject the hospital to federal regulation\nof its program of health services to infants.\nArguments that Medicare and Medicaid SHOULD be considered\nfederal financial assistance:\nThis has been the consistent interpretation of HHS since\nthe inception of the Medicare/Medicaid program, and has\ngenerally been accepted by hospitals and federal courts.\nIt is also the position DOJ has taken in litigation as\nrecently as June 1982, when Baylor Medical Center\nobjected to HHS investigatory jurisdiction and Justice\nfiled a brief in federal court saying the institution was\nfederally assisted because it received Medicare and\nMedicaid.\nEven though federal Medicaid payments are channeled\nthrough the states, we have generally accepted the\nprinciple that state distribution of federal moneys does\nnot insulate the recipient institution from federal civil\nrights jurisdiction: all our block grants have carried\nfederal civil rights strings with them.\nPolitically, we could just as easily be attacked for\ntrying to deregulate hospitals from civil rights laws as\nfor trying to deregulate tax-exempt schools in the Bob\nJones case.\nArguments that a hospital should not be covered by the\nhandicapped infants regulation unless federal funding goes to its\npediatrics ward:\nFollowing the Supreme Court's North Haven decision, we\nhave taken the position in litigation that only the\nspecific program or activity receiving federal financial\nassistance is covered by civil rights laws.\nFor example, we have said that federal payments to one\nprogram of a university do not subject all programs of\nthe university to civil rights coverage.\n-3-\nArguments that the entire hospital should be covered if\nfederal funds go to part of the hospital:\nIt is not clear that a hospital can be divided into a\n\"pediatrics program\" distinct from other parts of the\nhospital, since many types of care are often given within\na single hospital building, administered as a single\nprogram of care for patients.\nHHS has considered the entire hospital to be the relevant\nprogram or activity since the 1960s.\nThe Justice Department brief in the Baylor case follows\nthe view of the entire hospital as the relevant program\nor activity.\nThe argument against holding Medicare and Medicaid to be\nfederal assistance has legal and logical merit. The analogy to\nfood stamps and student loans has merit. However, we have\ndeparted from a thoroughgoing logical approach in this area by\nadmitting that Pell grants are federal assistance in the Grove\nCity case.\nAnalysis\nA major complicating factor in this decision is the brief\nfiled by Justice in the Baylor case. A copy of the Table of\nContents from this brief is attached. However strong our legal\narguments for saying that Medicare and Medicaid payments do not\nbring an entire hospital under federal civil rights coverage, we\nmust be ready to meet the accusation that we are changing our\nposition.\nPolitically, we could expect opposition from handicapped\ngroups, women's groups, civil rights groups, and right to life\ngroups. Without Medicare/Medicaid as a civil rights handle, a\nnumber of hospitals would drop out of civil rights coverage,\nespecially with regard to handicap discrimination, since the\nHill-Burton program expired around the time the Rehabilitation\nAct was enacted. As for potential political support, we should\nconsider whether hospitals and medical associations would want to\ngive public support to an effort that would take many of them out\nfrom federal civil rights coverage.\nRecommendation\nAll deliberations over this issue should involve White\nHouse Counsel's office, since the matter concerns pending\nlitigation.\n-4- - -\nO\nConvene meeting as soon as possible. Recommended\nparticipants:\n-- Fred Fielding\n-- Ed Meese, Jim Baker\n-- HHS (Heckler, del Real)\n-- DOJ (Schmults, Reynolds, Willard)\n-- OMB (Horowitz, Clarkson)\n-- OPD (Uhlmann, Carleson, Bradley)\nU.S.A. V. Boylor Universit Medical Center\nTABLE OF CONTENTS\nStatement\n1\nSummary of Argument\n4\nArgument\n5\nI. This Court Has Jurisdiction over the Complaint in this\nAction\n5\nII. The United States Has Stated a Claim Upon Which Relief\nCan Be Granted\n8\nA. Funds Received by Baylor Pursuant to Medicaid\nand Medicare Constitute \"Federal financial\nassistance\"\n9\n1. The consistent administrative construction\nof the term \"Federal financial assistance\"\nby HHS, as ratified by the case law, provides\nfor coverage of recipients of Medicaid and\nMedicare funds\n9\n2. The HHS administrative construction of \"Federal\nfinancial assistance\" is valid, since funds\nprovided pursuant to the Medicaid and Medicare\nprograms do not fall within the regulatory\nexclusion for \"contracts of insurance\"\n12\na. Medicaid\n12\nb. Medicare\n14\n3. The interpretation of \"contracts of insurance\"\nsuggested by Baylor is contrary to the intent\nof Congress\n18\na. The legislative history to Title VI\n18\nb. The legislative history to the Medicare\nProgram\n21\nB. Baylor Is a Recipient of Other Federal Funds\n22\nConclusion\n23\nTHE WHITE HOUSE\nWASHINGTON\nApril 13, 1983\nMEMORANDUM FOR JAMES A. BAKER, III\nEDWIN MEESE III\nFROM:\nEDWIN L. HARPER\nSUBJECT:\nNew York Handicapped Infants Regulation\nSuit Requires Policy Decision\nDoes federal aid to an individual who accepts that aid in\nthe context of an institution (e.g. school, college or\nhospital) constitute aid to the institution, opening the\ninstitution to a host of federal regulations?\nIn DOJ's filings in the Grove City and Hillsdale cases,\nwe have said no it does not. DOJ feels we should take\na similar position in this case.\nHHS feels that we should take the opposite position to\npreserve the infanticide regulations which it just\nissued. HHS finds itself on the side of the American\nLife Lobby on this issue. (see the attached telegram)\nThe brief which the government must file in the NY\ninfanticide case is an important policy choice.\nCC: Fred Fielding\nMike Uhlmann\nThe Thite House\nHandingt:\nWHC016(1359) (1-011298A103) PD 04/13/83 1358\nICS IPMWGWJ WSH\n1933 APR M PM 2 02\n00380 BUWASHINGTON DC 136 04-13 139P EST\nPMS HON EDWIN L HARPER\nASST TO THE PRESIDENT\nWHITE HOUSE DC\nGIVEN THE PRESIDENT'S PERSONAL COMMITMENT TO THE ANTI-\nINFANTICIDE REGULATIONS THE ADMINISTRATION WILL HAVE A MAJOR\nPOLITICAL DISASTER ON ITS HANDS IF ITS JUSTICE DEPARTMENT\nCIVIL RIGHTS DIVISION AGRES WITH THE CONTENTION OF THE AMERICAN\nHOSPITAL ASSN IN THEIR NEW YORK LAWSUIT AGAINST THE REGULATIONS\nTHAT MEDICARE/MEDICAID ARE NOT ASSISTANCE TO INSTITUTIONS.\nMRS HECKLER AT HE CONFIRMATION HEARINGS STATED THAT THE\nPENALTY FOR VIOLATION OF THE REGULATIONS COULD INCLUDE\nINELIGIBILITY FOR MEDICARE/MEDICAID.\nMEDICARE/MEDICAID RATES ARE SET PRIMARILY ON THE BASIS OF\nTHE FINANCIAL CONDITION AND COSTS OF THE HOSPITAL OR OTHER MEDICAL\nPROVIDER.\nFOR EXAMPLE THE FOR-PROFIT HOSPITAL RATE INCLUDES A GUARANTEED\nRETURN ON EUQUITY.\nDON'T LET JUSTICE CAUSE A MAJ OR POLITICAL EMBARRASSMENT.\nGET THEM TO FIGHT THEIR ISSUE ON ANOTHER CASE.\nGARY L CURRAN LEGISLATIE CONSULTANT\nAMERICAN LIFE LOBBY\n6 LIBRARY COURT S.E.\nWASHINGTON DC 20003\n(202) 546-5550\nNNNN\nMEMORANDUM\nTHE WHITE HOUSE\nWASHINGTON\nApril 13, 1983\nFOR:\nEDWIN L. HARPER\nFROM:\nMICHAEL M UHLMANN\nSUBJECT:\nHandicapped Infants Regulation and\nMedicare/Medicaid as Federal Financial Assistance\nThe Problem\nJustice and HHS are at an impasse over the issue of whether\nMedicare and Medicaid constitute federal financial assistance.\nThis issue is now presented squarely in litigation against our\nhandicapped infant regulation in the Southern District of New\nYork. (In the similar D.C. case pending before Judge Gesell,\nplaintiff medical groups did not raise this issue.) The district\njudge in New York has set a preliminary injunction hearing for\nMonday, and our brief is due Friday. Richard Willard of Justice\nbelieves we can avoid taking a position on this issue in the\nbrief, but we must be ready with an answer at the hearing on\nMonday.\nThus far, we have kept the HHS-DOJ debate over the issue\nlow-key, to avoid any adverse public flare-ups over the civil\nrights implications.\nThe non-discrimination requirement of Section 504 of the\nRehabilitation Act of 1973 applies to any program or activity\nthat receives federal financial assistance.\nThe issue therefore implicates not only the anti-infanticide\nregulation, but every federal civil rights scheme that is\ntriggered by receipt of federal financial assistance: race\ndiscrimination, sex discrimination, handicap discrimination. Any\nchange in the scope of coverage of this panoply of regulations is\nobviously fraught with controversy.\nArguments that Medicare and Medicaid should NOT be considered\nfederal financial assistance to hospitals (as articulated by\nCivil Rights Division of Justice):\nFederal Medicaid payments are made to the states, not to\nthe health care providers; hospitals participating in\nMedicaid receive financial assistance not from the\nfederal government but from the states.\nFederal Medicare payments are financial assistance to\nelderly patients, not to hospitals.\n-2-\n-- As with student loans, a federal payment for the\nbenefit of an individual, which can be used at any\ninstitution the individual chooses, should not bring\nthe institution under federal control.\n--- Medicare is analogous to food stamps, which are not\nand should not be considered federal financial\nassistance to grocery store chains.\n-- Moreover, Medicare is a federal funding program for\nthe elderly, and a hospital's receipt of Medicare\nshould not subject the hospital to federal regulation\nof its program of health services to infants.\nArguments that Medicare and Medicaid SHOULD be considered\nfederal financial assistance:\nThis has been the consistent interpretation of HHS since\nthe inception of the Medicare/Medicaid program, and has\ngenerally been accepted by hospitals and federal courts.\nIt is also the position DOJ has taken in litigation as\nrecently as June 1982, when Baylor Medical Center\nobjected to HHS investigatory jurisdiction and Justice\nfiled a brief in federal court saying the institution was\nfederally assisted because it received Medicare and\nMedicaid.\nEven though federal Medicaid payments are channeled\nthrough the states, we have generally accepted the\nprinciple that state distribution of federal moneys does\nnot insulate the recipient institution from federal civil\nrights jurisdiction: all our block grants have carried\nfederal civil rights strings with them.\nPolitically, we could just as easily be attacked for\ntrying to deregulate hospitals from civil rights laws as\nfor trying to deregulate tax-exempt schools in the Bob\nJones case.\nArguments that a hospital should not be covered by the\nhandicapped infants regulation unless federal funding goes to its\npediatrics ward:\nFollowing the Supreme Court's North Haven decision, we\nhave taken the position in litigation that only the\nspecific program or activity receiving federal financial\nassistance is covered by civil rights laws.\nFor example, we have said that federal payments to one\nprogram of a university do not subject all programs of\nthe university to civil rights coverage.\n-3-\nArguments that the entire hospital should be covered if\nfederal funds go to part of the hospital:\nIt is not clear that a hospital can be divided into a\n\"pediatrics program\" distinct from other parts of the\nhospital, since many types of care are often given within\na single hospital building, administered as a single\nprogram of care for patients.\nHHS has considered the entire hospital to be the relevant\nprogram or activity since the 1960s.\nThe Justice Department brief in the Baylor case follows\nthe view of the entire hospital as the relevant program\nor activity.\nThe argument against holding Medicare and Medicaid to be\nfederal assistance has legal and logical merit. The analogy to\nfood stamps and student loans has merit. However, we have\ndeparted from a thoroughgoing logical approach in this area by\nadmitting that Pell grants are federal assistance in the Grove\nCity case.\nAnalysis\nA major complicating factor in this decision is the brief\nfiled by Justice in the Baylor case. A copy of the Table of\nContents from this brief is attached. However strong our legal\narguments for saying that Medicare and Medicaid payments do not\nbring an entire hospital under federal civil rights coverage, we\nmust be ready to meet the accusation that we are changing our\nposition.\nPolitically, we could expect opposition from handicapped\ngroups, women's groups, civil rights groups, and right to life\ngroups. Without Medicare/Medicaid as a civil rights handle, a\nnumber of hospitals would drop out of civil rights coverage,\nespecially with regard to handicap discrimination, since the\nHill-Burton program expired around the time the Rehabilitation\nAct was enacted. As for potential political support, we should\nconsider whether hospitals and medical associations would want to\ngive public support to an effort that would take many of them out\nfrom federal civil rights coverage.\nRecommendation\nAll deliberations over this issue should involve White\nHouse Counsel's office, since the matter concerns pending\nlitigation.\n- -4-\nO\nConvene meeting as soon as possible. Recommended\nparticipants:\n-- Fred Fielding\n-- Ed Meese, Jim Baker\n-- HHS (Heckler, del Real)\n-- DOJ (Schmults, Reynolds, Willard)\n-- OMB (Horowitz, Clarkson)\n-- OPD (Uhlmann, Carleson, Bradley)\nInstande Gluenton\nBaylor University Medical Center\nTABLE OF CONTENTS\nStatement\n1\nSummary of Argument\n4\nArgument\n5\nI. This Court Has Jurisdiction over the Complaint in this\nAction\n5\nII. The United States Has Stated a Claim Upon Which Relief\nCan Be Granted\n8\nA. Funds Received by Baylor Pursuant to Medicaid\nand Medicare Constitute \"Federal financial\nassistance\"\n9\n1. The consistent administrative construction\nof the term \"Federal financial assistance\"\nby HHS, as ratified by the case law, provides\nfor coverage of recipients of Medicaid and\nMedicare funds\n9\n2. The HHS administrative construction of \"Federal\nfinancial assistance\" is valid, since funds\nprovided pursuant to the Medicaid and Medicare\nprograms do not fall within the regulatory\nexclusion for \"contracts of insurance\"\n12\na. Medicaid\n12\nb. Medicare\n14\n3. The interpretation of \"contracts of insurance\"\nsuggested by Baylor is contrary to the intent\nof Congress\n18\na. The legislative history to Title VI\n18\nb. The legislative history to the Medicare\nProgram\n21\nB. Baylor Is a Recipient of Other Federal Funds\n22\nConclusion\n23\nTHE WHITE HOUSE\nWASHINGTON\nMarch 15, 1983\nMEMORANDUM FOR JAMES A. BAKER III\nFROM:\nEDWIN L. HARPER\nSUBJECT:\nFollow-Up on 3/15 Senior Staff Meeting\nBased on Roger Porter's notes from the 3/15 Senior Staff meeting,\nI thought you might be interested in the following:\nTracking PRB Activities\nThe Property Review Board staff implements the policies set\nby the PRB including the study of forest service lands for\npossible sale as excess property. The staff coordinates its\nactivities with Fielding's office, Duberstein's office,\nWilliamson's office, GSA, and OMB via its weekly activity\nreports.\nThe weekly activity reports for the last month are at Tab A.\nACTION\nWould you like to receive these weekly reports or would you\nlike them sent to other members of your staff?\nAn important asset to coordinating the PRB's activites will\nbe the WH Legislative Affairs staff's filling the legislative\nliaison slot which PRB made available last fall.\nCrime Bill and CCLP\nAs you know we were finally able to resolve all of the\nsubstantive issues on the crime bill without the necessity of a\nCCLP.\ncc: Edwin Meese III\nDick Darman\nCraig Fuller\nJosh Muss\nTAB A\nPROPERTY REVIEW BOARD\n*\n17th & PENNSYLVANIA AVENUE, N.W.\nWASHINGTON, D.C. 20500\nMarch 14, 1983\nMEMORANDUM FOR EDWIN L. HARPER\nCHAIRMAN, PROPERTY REVIEW BOARD\nFROM:\nBRUCE I. SELFON B\nSUBJECT:\nACTIVITIES REPORT - WEEK OF MARCH 7, 1983\nThe principal activities for the Property Review Board\nstaff follow:\n1. Met with Congressman Ken Kramer and James D. Range,\nLegislative Counsel to Senator Howard Baker, for\ndiscussions re Asset Management Program of the\nForest Service.\n2. Held meeting with representatives of GSA,\nDepartment of the Army and Justic Department re\nHamilton Air Force Base. A separate meeting with\nCongresswoman Barbara Boxer was also held.\n3. Met with Congressman Frank Horton for discussions\non the future of the Land Use Project, which is\nbeing studied for disposal near Hector, New York.\n4. Received from the Department of Education written\nconfirmation of their ability to expand their program\nto support the transfer of surplus property to state\nand local governments for correctional facilities.\n5. Met with Harry Walters to discuss the relationship\nof the property initiative to the Veterans Administration.\n6. Met with Assistant Secretary of the Air Force\nTidal McCoy re property initiative.\n- 2 -\nNext week's planned activities:\n1. Joshua Muss reviewing controversial properties\nin Rhode Island with Rhode Island congressional\ndelegation.\n2. Meet with Congresswoman Cardiss Collins, new\nReal Property Oversight Sub-committee Chairman.\n3. Meet with Secretary Watt re property management\ninitiative.\n4. Meet with Assistant Secretary of the Army Joel Bonner\nre property management initiative.\nCC:\nGerald Carmen\nKevin Hopkins\nFred Khedouri\nMike Horowtiz\nDavid Waller\nNancy Risque\nJohn Cooney\nRoger Adkins\nJim Murr\nRichard Hauser\nRichard Williamson\nPROPERTY REVIEW BOARD\n17th & PENNSYLVANIA AVENUE, N.W.\nWASHINGTON, D.C. 20500\nMarch 7, 1983\nMEMORANDUM FOR EDWIN L. HARPER\nCHAIRMAN, PROPERTY REVIEW BOARD\nFROM:\nJOSHUA A. MUSS\nSUBJECT:\nActivities Report - Week of February 28, 1983\nThe principal activities for the Property Review Board staff\nfollow:\n1.\nReviewed asset management program maps prepared by the\nForest Service.\n2.\nAppeared before the Society of American Foresters Asset\nManagement Task Force.\n3.\nMet with investment bankers to discuss establishment of\na new financing vehicle for surplus property sales.\n4.\nInterviewed by Kiplinger. Newsletter reporter (cleared\nby OPI)\n5. Met with George Sawyer, Assistant Secretary of the Navy\n(Shipbuilding and Logistics) re Department of Navy's\nrole in property management program.\nNext week's planned activities:\n1.\nMeet with key Congressional Congressional members and\nstaff to discuss Forest Service legislative proposal.\n2. Meet with representatives of GSA, Justice and Department\nof the Interior to discuss status of Hamilton Air Force\nBase.\n3. Meet with Administrator of Veterans Administration and\nwith Assistant Secretary of the Air Force to review\nprogress of the property management initiative.\n4. Meet with veterans groups and Justice Department re\nPershing Hall legislative proposal.\nCC: Gerald Carmen\nKevin Hopkins\nFred Khedouri\nMike Horowitz\nDavid Waller\nNancy Risque\nJohn Cooney\nRoger Adkins\nJim Murr'\nRichard Hauser\nRichard Williamson\nPROPERTY REVIEW BOARD\n17th & PENNSYLVANIA AVENUE, N.W.\nWASHINGTON, DC. 20500\nFebruary 28, 1983\nMEMORANDUM FOR EDWIN L. HARPER\nCHAIRMAN, PROPERTY REVIEW BOARD\nFROM:\nBRUCE I. SELFON B\nSUBJECT:\nActivities Report - Week of February 21, 1983\nThe principal activities for the Property Review Board staff\nfollow:\n1. Met with Senator Inouye and Congressman Heftel of Hawaii\nto discuss Kaloko-Honokohau National Historical Park and\nFort DeRussy. Next step is to consult with Governor\nAriyoshi.\n2. Met with Senator McClure's personal staff and Committee\non Energy and Natural Resources staff to discuss Forest\nand public information program for asset\nmanagement program.\n3. Met with Congressman Kramer to discuss status of property\nmanagement initiative and to inquire of his interest in\nintroducing the National Debt Retirement Act of 1983.\n4. Met with Gerald Carmen, Ray Kline, Edwin Harper and GSA\nstaff to discuss progress of the sales initiative at GSA.\n5. Met with Jerry Dondero and Paul Wagner, who represent the\nGreenwell Estate on the status of Kaloko-Honokohau\nNational Historic Park.\n6. Met with minority staff of the House Government Operations\nCommittee to discuss oversight activity in the 98th\nCongress.\n7. Met with staff of Senator Mathias to discuss his bill to\nprohibit sale of property at Beltsville Agricultural\nResearch Center.\nNext week's planned activities:\n1. Appear before the Society of American Foresters Asset\nManagement Task Force.\n2. Meet with investment bankers to discuss establishment of\na new financing vehicle for surplus property sales.\n3. Meet with Governor Ariyoshi to discuss Hawaiian properties.\n4. Interview by Kiplinger Newsletter reporter (cleared by OPI).\nCC:\nGerald Carmen\nKevin Hopkins\nFred Khedouri\nMike Horowitz\nDavid Waller\nNancy Risque\nJohn Cooney\nRoger Adkins\nJim Murr\nRichard Hauser\nRichard Williamson\nPROPERTY REVIEW BOARD\n17th & PENNSYLVANIA AVENUE, N.W.\nWASHINGTON, D.C. 20500\nFebruary 18, 1983\nMEMORANDUM FOR EDWIN L. HARPER\nCHAIRMAN, PROPERTY REVIEW BOARD\nFROM:\nBRUCE I. SELFON B\nSUBJECT:\nActivities Report - Week of February 14, 1983\nThe principal activities for the Property Review Board staff\nfollow:\n1.\nMet with Gerald Carmen for further discussions of GSA\nimplementation of the property management initiative.\n2.\nMet with Don Sowle of the Office of Federal Procurement\nPolicy for general discussions regarding possible procure-\nment of investment banking services.\n3.\nMet with Forest Service representatives for review of\ntheir asset management maps of lands scheduled for further\nstudy.\n4.\nSent to the Interior Department an outline of proposed\nlegislation on Pershing Hall Memorial in Paris.\n5.\nHeld further discussions with Defense and OMB regarding\nSection 802 of Milcon.\n6.\nProvided comments to the Department of Interior on a\nmarketing strategy for their sale of lands under FLPMA.\nNext week's planned activities:\n1.\nMeeting scheduled with Senator Inouye and Congressman\nHeftel to discuss Kaloko-Honokohau Historical Park and\nother Hawaiian properties.\n2.\nMeeting scheduled with Senate Committee on Energy and\nNatural Resources staff to show them a typical Forest\nService asset management map.\n3.\nJoshua Muss to be interviewed by a reporter for the\nPhiladelphia Inquirer for overall one-year update on the\nPRB program. (Cleared by OPI).\n4.\nMeeting scheduled with John Duncan, Minority Staff\nDirector, Committee on Government Operations, to\ndiscuss the property initiative in the 98th Congress.\nCC: Gerald Carmen\nKevin Hopkins\nFred Khedouri\nMike Horowitz\nDavid Waller\nNancy Risque\nJohn Cooney\nRoger Adkins\nRichard Hauser\nJim Rish Williamson Murr\nPROPERTY REVIEW BOARD\n17th & PENNSYLVANIA AVENUE, N.W.\nWASHINGTON, D.C. 20500\nFebruary 14, 1983\nMEMORANDUM FOR EDWIN L. HARPER\nCHAIRMAN, PROPERTY REVIEW BOARD\nFROM:\nJOSHUA A. MUSS\nSUBJECT:\nActivities Report - Week of February 7, 1983\nThe principal activities for the Property Review Board staff\nfollow:\n1.\nA meeting was held with the Assistant Secretaries of\nEducation, Health and Human Services, Interior, and\nrepresentatives of General Services Administration and\nthe Department of Justice to discuss prior discount\nconveyances. The PRB staff presented a review of past\npractices. The agencies agreed to establish uniform\ncriteria for future conveyances and to prepare a written\nreport within two weeks on suggested new standards.\n2.\nJoshua Muss met with Ted Neuenschwander and Max Rogers\nof Senator McClure's staff, and with Gary Ellsworth and\nTony Bevinetto, staff members of the Senate Energy and\nNatural Resources Committee, to discuss the asset manage-\nment programs of BLM and the Forest Service.\n3.\nMet with Fred Khedouri, John Crowell and David Swanson\nregarding USDA legislative strategy.\n4.\nMet with Albert Abrahams of the National Association of\nRealtors to discuss real estate brokers.\n5.\nMet with representatives of Department of Justice to\ndiscuss the legislative proposal for Pershing Hall.\nNext week's planned major activities:\n1.\nMeeting scheduled with Gerald Carment) to discuss GSA\noperations.\n2.\nMeeting with Don Sowle to discuss procurement of invest-\nment banking services.\ncc: Gerald Carmen\nAnnelise Anderson\nFred Khedouri\nMike Horowitz\nKevin Hopkins\nNancy Risque\nJohn Cooney\nDavid Waller\nJim Murr\nRichard Hauser\nRoger Adkins\nOPEN\nmemor\n<\nTHE WHITE HOUSE\nWASHINGTON\nTO cicconi\n1/13/13\nJanuary 12, 1983\nMEMORANDUM FOR JAMES A. BAKER\nJIM CICCONI\nFROM:\nVELMA MONTOYA Velma\nAt the White House Senior Staff Christmas party, my husband, Earl\nThompson, began to describe his \"labor standard\" for the economy\nthat suggests the convertibility of money into a fixed quantity\nof labor. You asked him to put it in writing. Here it is, both\na three-page summary and a longer version, both presented to the\nGold Commission.\nImplementation of the standard has the characteristics of\neliminating inflation, the business cycle, and governmental\nmonetary control, while permitting efficient, laissez faire\nbanking.\nFREE BANKING UNDER A LABOR STANDARD --\nTHE PERFECT MONETARY SYSTEM\nSubmitted by\nEARL A. THOMPSON\nDEPARTMENT OF ECONOMICS\nUNIVERSITY OF CALIFORNIA, LOS ANGELES\nJANUARY 8, 1982\nNo one to my knowledge has prescribed a financial system that would, at\nleast within familiar economic paradigms, guarantee an automatic, simultaneous\ncure for all of our macroeconomic maladies (viz., inefficient fluctuations in\nemployment, persistent and highly variable rates of inflation or deflation,\nand governmentally created, artificial scarcities of money). Economists seem\nto believe that such a system does not exist. However, there is a financial\nsystem -- one with a labor standard and free banking -- that would, at least\ntheoretically, simultaneously prevent all macroeconomic ills regardless of the\nkinds of shocks that hit our economy and without any reliance whatsoever on\ndiscretionary policy intervention.\nThe only governmental responsibility in this financial system is to make\nthe dollar freely convertible into an amount of gold, or noncurrency redemp-\ntion asset that government finds most convenient, just enabling the redeemer\nto purchase a predetermined, fixed amount of labor in the free market.\nSo, theoretically speaking, a dollar will always buy a constant amount,\nsay five minutes, of U.S. labor. This creates a stable and intertemporally\nconstant wage level. To see this, suppose that the free market level of money\nwages were to increase, ceteris paribus. The amount of gold required to pur-\nchase a unit of labor would increase correspondingly. Since the public could\nthen obtain more gold for a dollar from the government than they could from\nthe free market, arbitrageurs would profit by turning dollars into the govern-\nment for gold and then selling the gold in the free market. The resulting,\nautomatic drain of dollars from the system would serve to depress money wages.\nThe induced reduction in the free market's money price of gold would not reduce\nthe arbitrage profit because a lower gold price immediately increases the\namount of gold required to purchase a unit of labor and therefore the amount\nof gold one can obtain from the government for a dollar; as the financial re-\nturn to the gold purchase and resale decreases, its cost decreases by the same\namount. The currency drain, therefore, continues until the money wage rate is\nrestored to its original level.\nIn a world with many kinds of labor, our standard would stabilize the\nquantity-weighted average wage rate, e.g., the 30-million worker, B.L.S.\nmonthly wage index, thereby giving an individual, for his dollar, an amount of\ngold just enabling him to purchase a representative set of labor services\ntotalling a constant number of man-minutes of U.S. labor.\nSince monthly wage index data are not available until well into the\nfollowing month, a practical problem arises as to how to determine the relevant\n2\nconversion prices. To solve this, the government should make its conversion\npayments assuming that the wage index will be at its theoretical value, but\ncompensate all large converters ex post for subsequently observed increases in\nthe index from its theoretical value and, of course, charge them for decreases\nin the subsequently observed index. Thus, the government would make its March\nconversion payments assuming that the average cost of five minutes of labor\nduring March is $1.00; but if this average cost turns out to be, say $1.02,\nthen all large converters would be due an extra 2% gold payment while if the\nindex were, say, at $.97, the large converters would have to pay 3% more dol-\nlars to the government. Thus, if informed speculators thought, on balance,\nthat the March wage index was going to be above $1.00, they would, on balance,\nconvert dollars to gold, simultaneously sell the gold in the free market, and\nwait for their expected compensation from the government in the following\nmonth. The dollar drain created by this operation would depress the expected\nwage level until it reached unity. In this way we would always have an ex-\npected wage index, an expected dollar cost of five minutes of labor, of $1.00.\nAnother practical problem, a temporary one, is posed by the fact that\nexisting contracts are geared toward about a 10% annual increase in money\nwages over the next few years. Allowing gradual decreases in the labor con-\nversion rate for a few years, commencing at a 10% annual rate, before stabiliz-\ning it at, say, five minutes of U.S. labor for a dollar (i.e., to where the\naverage wage level is $12 per hour) would preclude potentially very costly re-\ncontracting and at the same time substantially reduce the redistributional\ncomponent of the increase in the value of existing long-term bonds. Alterna-\ntively, a new, recognizably distinct, labor-convertible dollar could be\nprinted. This would not only allow existing contracts requiring the delivery\nof future dollars to be executed in the old, Fed-controlled, depreciating dol-\nlars and thereby permit an immediate move to an intertemporally constant wage\nlevel in terms of the new currency; it would also, by enabling the government\nto prohibit the Fed from transacting in new dollars, prevent the Fed from in-\nadvisedly attempting to neutralize the efficient, labor-standard, currency\nflows between the Treasury and Public. After a while, once most old-dollar\nobligations have been fulfilled, and the new dollar has supplanted the old,\nthe Fed could take over the Treasury's conversion operation, although this\nwould presumably require an Act of Congress. Such an Act should also eliminate\nreserve requirements, bank interest rate regulations, rediscounting and open\nmarket operations as needless constraints on the free market's efficient,\ncompetitive provision of a currency-convertible medium of exchange. The\nintertemporally constant wage rate would insure the automatic absence of inef-\nficient business-cylce unemployment and the removal of the artificial con-\nstraints on the banking system would assure a statically efficient, competitive\nbanking system.\nWhile inefficient fluctuations in employment would disappear under a\nlabor-standard, they would be greatly exacerbated by returning to a simple\ngold standard because money wages and employment under a gold standard are\naltered by variations in the free market's relative price of labor in terms of\ngold and because the relative price of assets fixed in supply to the world has\nbecome highly unstable and should be expected to remain so over the foreseeable\nfuture. For the same reason, adopting the discipline of a commodity index\nstandard would induce more severe employment swings than we've witnessed over\nthe past decade. Moreover, unlike a gold standard, a labor standard would neither\nrequire international cooperation nor lay us open to foreign economic sabotage.\n3\nFinally, the resumptions of convertibility that would occur under a labor\nstandard following wartime convertibility suspensions and inflations -- in\nsharp contrast to gold standard resumptions -- would create nothing like the\ngradually decreasing money wages and great depressions characteristic of our\nsordid past under the gold standard. Resumptions of convertibility under a\nlabor standard would instead produce the immediate wage and price level ad-\njustments characteristic of harmless currency reforms. The system would be\ndepression-proof.\nFREE BANKING UNDER A LABOR STANDARD\nPrepared for the U.S. Gold Commission\nNovember 1981\nBy Earl A. Thompson, UCLA\nMacroeconomic ills -- inefficient fluctuation in employment, per-\nsistent and highly variable rates of inflation or deflation, and govern-\nmentally created, artificial scarcities of money -- have received a sig-\nnificant and probably increasing portion of economists' attention over the\npast couple of centuries. Yet no one to my knowledge has specified a\nfinancial system that would, at least within familiar economic paradigms,\nguarantee a simultaneous cure for all these maladies without creating new\nones. Economists seem to believe that such a system does not exist. How-\never, there is a financial system -- one with free banking and a labor\nstandard -- that would, at least theoretically, simultaneously preclude all\nof these macroeconomic ills regardless of the kinds of shocks that hit our\neconomy and without any reliance on discretionary policy intervention.\nThe first part of this paper describes a competitive economy with free\nbanking under a labor standard and discusses some problems of implementa-\ntion. The second explains its efficiency compared to the existing system.\nThe third explains its efficiency compared to other systems such as the\n2\nclassical gold standard, commodity-bundle convertibility systems, and gold-\n1\nbased fractional reserve systems.\nA simple advantage of this theoretically perfect system is that it\nrequires no international cooperation whatsoever. Hence, international\nbanking and trade issues will receive no detailed consideration in this\npaper.\n1\nTheoretical background for these efficiency arguments can be found in\nmy 1974 and 1977 papers. These papers explain the static efficiency of a\ncompetitive banking system. The 1974 paper also points out a critical\ndynamic defect in the classical gold standard in that shifts altering the\nfree market value of gold, relative to other outputs, alter money wage and\nemployment levels more than under a modern, fixed-money-supply regime; cor-\nrespondingly, it points out that by far the worst depressions of modern\nhistory, all of which occurred under a gold standard, were the obvious re-\nsults of such shifts. The papers make no mention of the labor standard\ndeveloped here. The latter did not occur to me until a UCLA graduate stu-\ndent, Gertrud Fremling, informed me of the possibility of a \"variable gold\nstandard,\" a standard apparently first proposed by Simon Newcomb before the\nresumption of the U.S. gold standard in 1879 and again later by his student,\nIrving Fisher (in Stabilizing the Dollar) in 1920, prior to the European\ngold-standard resumptions of the mid-late 1920's. (Each policy suggestion\nwas ignored and, as a result, each resumption created a needless and severe\ndepression.) Their suggested monetary standard tied the amount of gold one\ncould obtain for his currency to an index of commodity prices. A similar,\nsimple type of convertibility, suggested by many authors, ties the dollar\nto a given commodity bundle rather than just gold. My variation on the\nNewcomb-Fisher theme ties gold payments to a wage index rather than a com-\nmodity price index and allows substitutes for gold payments at the conve-\nnience of the government. If these authors had the modern theory of rational\nunemployment and the monthly, 30 million-worker, BLS wage index available\nto them, I suspect they too would have espoused some kind of labor standard.\n3\nI. THE MEANING OF A LABOR STANDARD WITH FREE BANKING\nA. A Labor Standard. A labor standard, like a classical gold\nstandard, allows people to convert their currency into \"gold,\" the non-\ncurrency asset of the government that it finds most convenient to redeem\nfor currency. But unlike the classical gold standard, the quantity of\ngold one can obtain for his currency is not a given constant. One obtains,\ninstead, an amount of gold just enabling him to purchase a fixed amount of\nlabor in the free market.\nSo, theoretically speaking, a dollar will always buy a constant\namount, say five minutes, of U.S. labor. This creates a stable and inter-\ntemporally constant wage level. To see this, suppose that, for whatever\nreason, the free market level of money wages were to increase. The amount\nof gold required to purchase a unit of labor would increase correspondingly.\nSince the public could then obtain more gold for a dollar from the govern-\nment than they could from the free market, arbitrageurs would profit by\nturning dollars into the government for gold and then selling the gold in\nthe free market. The resulting, automatic drain of dollars from the system\nwould serve to depress money wages. The induced reduction in the free\nmarket's money price of gold would not reduce the arbitrage profit because\na lower gold price immediately increases the amount of gold required to\npurchase a unit of labor and therefore the amount of gold one can obtain\nfrom the government for a dollar. As the financial return to the gold\npurchase and resale decreases, its cost decreases by the same amount. The\ncurrency drain, therefore, continues until the money wage rate is restored\nto its original level.\n4\nWhile gold, the metal, could possibly become relatively inconvenient\nfor the government to deliver in this arbitrage process, there is no rea-\nson for a legal commitment to payments in the form of this metal. Other,\nsometimes more convenient redemption assets, such as other metals, may be\nused instead. Even bonds may be used on a temporary basis. The converter\nis only interested in what the asset obtained for his currency will fetch\nin private markets; an amount that stays the same under fixed labor con-\nvertibility regardless of which asset the government surrenders to redeem\nthe public's currency.\nIn a world, like our own, with many kinds of labor, each receiving its\nown variable money wage rate, our standard would stabilize the quantity-\nweighted average wage rate, e.g., the B.L.S. monthly wage index, thereby\ngiving an individual, for his dollar, an amount of gold just enabling him\nto purchase a representative set of labor services totalling a constant\namount, say five minutes, of man-hours of U.S. labor. (Other countries\nwould be encouraged, in the interests of their own economies, to tie\ntheir currencies to their own wage indices rather than the dollar.)\nSince monthly wage index data are not available until well into the\nfollowing month, a practical problem arises as to how to determine the\nrelevant conversion prices. The best method that has occurred to me is to\nhave the government make its conversion payments assuming that the wage\nindex will be at its theoretical value, but compensate (charge) all large\nconverters ex post for the subsequently observed deviation in the index from its\ntheoretical value. Thus, the government would make its March conversion\npayments assuming that the average cost of five minutes of labor during\nMarch will be $1.00; but if this average cost turns out to be, say $1.02,\n5\nthen all large converters would be due an extra 2% gold payment while if\nthe index were, say, at $.97, the large converters would have to pay 3%\nmore dollars to the government. Thus, if informed speculators thought, on\nbalance, that the March wage index was going to be above 1.00, they would,\non balance, convert dollars to gold, simultaneously sell the gold in the\nfree market, and wait for their expected compensation from the government\nin the following month. The dollar drain created by this operation would\nthen depress the expected wage level until it reached, on balance, unity.\nIn this way we would always have an expected wage index, an expected dollar\ncost of five minutes of labor, of $1.00.\nAnother practical problem, a temporary one, is posed by the fact that\nexisting contracts are geared toward about a 10% annual increase in money\nwages over the next few years. Allowing gradual decreases in the labor conversion\nrate for a few years, commencing at a 10% annual rate, before stabilizing it\nat, say, 5 minutes of U.S. labor for a dollar (i.e., to where the average\nwage level is $12 per hour) would preclude potentially very costly recon-\ntracting and at the same time substantially reduce the redistributional\ncomponent of the increase in the value of existing long-term bonds.\nB. Free Banking. An economy with free, unconstrained, competitive\nbanking has no governmental regulation on the quantity of money it can\nissue. There are no reserve requirements held by the government and no\nrestrictions on interest payments. Federal reserve banks would serve only\nas clearing houses. Banks would be free to print their own notes as long\nas the notes could be easily distinguished from those of other entities\nand were convertible into government issue or gold. Deposit insurance\nwould, however, be maintained to reduce the individual over-risk incentives\n6\nof banks due to the inability of some of the creditors of a bank's finan-\ncially dependent creditors to observe, and thereby economically appreciate,\nthe quality of the loans made by the bank.\nMost important, as emphasized by the nineteenth century advocates of\nlaissez-faire banking, currency overissue and underissue by the government\nwould be impossible in such a system. An unprovoked governmental injection\nof currency would, if not immediately neutralized by private conversion, put\nupward pressure on wages and create an arbitrage profit to conversion, a profit\nthat would not be removed until the injection is neutralized by the arbitrage-\nmotivated conversions. Similarly, if government currency came into short\nsupply, private gold sales to the government would expand the currency supply\nbefore wages could fall to any appreciable degree. This classical \"Law of Reflux\"\nwould thus assure against governmental overissue and underissue without any\nreliance whatever on system-wisdom on the part of government authorities.\n7\nII. THE ECONOMIC EFFICIENCY OF FREE BANKING UNDER A LABOR STANDARD\nA. Financial Efficiency\nBy allowing banks to freely compete with other debt issuers rather\nthan choking them back with reserve requirements and restrictions on inter-\nest payments, we would remove the current, artificial excess of bank lending\nrates over certain borrowing rates, an excess that has unnecessarily in-\ncreased borrowing costs to business and forced small depositers around the\ncountry to inefficiently substitute back and forth into and out of a myriad\nof very short term asset positions in order to avoid the artificially low\ninterest rates offered them by the banks. (I have estimated our loss in\nreal wealth from this contrived, inefficient redirection of short term lend-\ning away from banks to be in excess of $200 billion in 1980 dollars.) Sub-\nstantial additional savings would come from the cessation of our speculation-\ninducing, frustrating attempts to control the economy's various money\nsupplies and also from the end of federal regulation of individual banks.\n(Although some additional governmental expenditures would be required to\nmake conversion payments and issue currency in exchange for gold, there is\nlittle reason to believe that they would exceed the simple transaction-cost\ncomponent of current governmental attempts to keep our various money supplies\nwithin their targeted ranges.)\nAs average output prices decline over time under a simple labor standard\nat a rate equal to the increase in the real wage rate (about 2% annually if\nhistory is any guide) the holding of currency would be rewarded by a real\ninterest rate that is probably only slightly below the typical real rates\non other assets. While this is approximately optimal, knowledge of an\nexact optimum would not be possible unless private banks are just as good\n8\nat producing currency as the government, in which case the exact optimum\noccurs where the money rate of interest competing banks would pay to in-\nduce people to hold their currencies matched the governmental rate of zero.\nEven at this exact \"optimum,\" there may be special social costs of adjusting\nthe physical attributes of the government currency supply based on the\ngradual deflation of output prices. As a result, even if future governments\nhave no serious competition in the business of supplying currency, it may\nbe better, as a practical matter, to allow a gradual, committed, fixed\nescalation of the wage-level, a gradual and constant decrease in the\namount of labor one can obtain for his dollar through conversion. This\ntrend value, having strong psychological as well as economic returns and\ncosts, is best, I believe, left to the political process to determine.\nMy suggestion then would be to reduce the labor content of the dollar\nso that money wage growth increased in the following sequence:\n10%\n1st year\n8%\n2nd year\n6%\n3rd year\n4%\n4th year\n2%\n5th year\n2%\n6th year\n2%\n7th year\n2%\n8th year\n2%\n9th year\n2%\n10th year.\nAt the end of the eighth or ninth year, I'd see if several, private, compet-\ning substitutes for treasury notes and coins were developing. If they were,\nI'd examine the implicit interest rate on them and reduce the wage inflation\nrate by this rate so as to make this competitive interest rate zero. If\nsuch substitutes were not developing, I'd have congress vote on whether to\nkeep the rate at two percent or go to one or zero percent.\n9\nIt should be pointed out that short-term interest rates under wage-\nlevel constancy would normally be so low that the government's short-term\ndebt would be essentially non-interest bearing. Currency would be so\nreadily held as an appreciating short-term asset that treasury bill financing\nrequirements would be reduced to insignificance. The resulting savings in\ntransaction costs provide an additional reason for preferring constant\nrather than constantly increasing money wage rates. With money wages\nrising around 2% per year, the average annual treasury bill rate would be\naround 2%, and bills, as now, would be a frequently important source of\ngovernment finance.\nIn either case, competitive interest rates on savings accounts would\nbe so low that demand deposits would replace time deposits and existing\nnonbank financial intermediaries would either become banks or be absorbed\nby banks. The substantial, socially wasteful, transaction costs people\nnow endure in switching between savings accounts, treasury bills, and bank\nchecking deposits would be gradually eliminated as the system approached\nits noninflationary equilibrium.\nB. Dynamic Efficiency\nWhile some swings in overall commodity prices and outputs would remain\nunder labor convertibility, there is no reason for us to want them eliminated.\nSuch fluctuations may merely reflect the changing values informed individuals\nplace on commodities over time. What we should want eliminated are the\nerroneous decisions by labor over what we have come to know as the business\ncycle. These errors are based on the inability of labor to distinguish\nchanges in the economy's overall wage level from changes in relative wages\n10\nbetween various kinds of employment. Economists have long observed that\nwhenever the overall wage level drops below its usual trend, many workers\nleave their current employments. This may be because they have some form\nof rigid, fixed-wage contract with their employers; but more likely they\nerroneously believe that wages have not also fallen elsewhere -- that there\nhas been a change in the relative returns across different types of employ-\nment rather than a change in the overall wage level. In either case, the\nresult is excessive job-search, occupational re-tooling, and, perhaps, lei-\nsure during a period of decreasing wages and too little of such activity\nduring booms. Moreover, during normal times, i.e., when average wages are\non trend but there are still unexpected expansions in employment opportuni-\nties in some industries but contractions in others, laborers being offered\nlower than expected wages are, in our economy, tempted to believe that the\neconomy is in recession, i.e. that wage offers have been reduced everywhere\nelse too, and will remain in this low-valued use too long. This creates\ntoo little normal, \"frictional\" unemployment -- too little job mobility --\nin our economy and is a partial rationale for our expensive system of unem-\nployment compensation.\nThese inefficiencies in the labor market, and the highly expensive\npolicies that are employed to combat them, would all be immediately removed\nby adopting a system of labor convertibility.\nThere are many sources of inefficient employment cycles in our current\neconomy. Increases in money demand -- when not matched by equal increases\nin our governmentally controlled money supplies -- induce people to sell\nassets, create lower prices and wage offers, and therefore inefficient un-\nemployment. Increases in the price of imported oil -- when not matched\n11\nby immediate jumps in the money supply -- cause decreases in the produc-\ntivity of labor, lower wage offers throughout most of the economy, and in-\nefficient unemployment. Whatever the cause of such unfortunate business\nswings, labor convertibility would eliminate them. It would do this by\nautomatically neutralizing such shocks with immediate, endogenous changes\nin the privately determined money supply. An increase in money demand\nwould just be supplied by the unconstrained, private bankers or through\nreductions in conversions with the passive Federal Reserve, which would be\nfilling its originally mandated function of quickly responding to the \"needs\nof trade.\" A lower productivity of labor through higher costs of imported\noil would, by raising the price of non-labor commodities and the demand for\nmoney, induce an equal increase in the supply of money and no inefficient\nunemployment. The business cycle, as it is usually conceived, would be\ndead.\nMoreover, the economy would gain through increased mobility and or-\ndinary job search and could justifiably cut way down on its expensive sup-\nport of unemployment compensation.\n12\nIII. THE SUPERIORITY OF LABOR TO OTHER CONVERSION STANDARDS\nA. Commodity Index Convertibility\nCommodity index convertibility, and thus price level stability, in our\nmodern economy would be substantially inferior to labor convertibility.\nThis is because the world in recent years has become much more subject to\nlarge jumps in the values of assets that will be fixed in supply to the\nworld in the foreseeable future, gold, oil, collectables, etc. This means\nthat keeping average commodity prices constant still creates a great deal\nof money wage variability and unemployment. We would, for example, have\nhad falling money wages and much more unemployment during the sluggish\n1970's under a constant commodity price index than under our current,\nfeeble, government-controlled monetary system. Depression levels of employ-\nment would have been approached and fixed-commodity-bundle convertibility\nprobably abandoned as a financial system. In contrast, no such instability\nexists under labor convertibility, a system that allows price\nlevels to rise and fall with the rise and fall in commodity demands.\nThe superiority of labor convertibility over commodity index con-\nvertibility is so substantial given the recent instability of commodity\nvalues that even though I estimate a jump of about 20% in our national\nwealth by going from our current system to labor convertibility, I would\nrecommend our current system over commodity index convertibility. The de-\npression-potential of price-level-stability is just too great in a modern\neconomy.\n13\nB. The Classical Gold Standard\nReturning to a simple, pre-1933, freely convertible gold standard\nwould undoubtedly be the single worst economic policy in U.S. history.\nUnder a simple, convertible gold standard and free banking, the money\nprice of gold is pegged by the government; so the average money prices of\nall goods, i.e., \"the price level,\" varies directly with the free market\nevaluation of these goods relative to gold. A jump in the public's demand\nfor gold would, by forcing the government and other money suppliers to ab-\nsorb money in exchange for gold under free convertibility, depress the\nprice level by a percentage drop equal to the percentage increase in the\nrelative value of gold.\nThe magnitudes involved are hair-raising. For example, suppose that\nin August, 1971, President Nixon, rather than abandoning the last vestiges\nof the gold standard, returned us to the freely convertible, competitive-\nbanking, gold standard, the type of return last tried in the late 1920's\nby several European countries. Since the remainder of the 1970's was\nmarked by a 2,000% increase in the real value of gold, the price level would\nhave had to fall to 20 1 th of its 1971 level in order to prevent a drain of\nour gold reserves. This might not sound bad; but to maintain 1980 profits\nand production, 1971 workers would have had to be willing to continue working\nat wages close to 20 1 th of their 1971 level rather than either jumping on to\nemployment insurance, welfare, and governmental training programs or quit-\nting to search out what they erroneously perceived to be now-greener pas-\ntures. Experience shows that they would not have been so willing. The\ncomparatively small, 25% wage reduction during the great depression, when\ngovernment welfare alternatives were virtually absent, produced a decrease\n14\nin employment of about 25%. And we're talking -- realistically -- about a\nreduction in the wage level to 20ᵗʰ, 1 not 3/4, of its normal level!\nOur economic and political system barely survived the celebrated return\nto the discipline of the gold standard in the late 1920s. Such a return in\nthe early 1970s would have clearly shattered our system beyond recognition.\nThe old gold standard always was vulnerable to variations in the value of\ngold relative to other goods. It never was a desirable system in terms of\nbusiness-cycle-stability. What would make it an order-of-magnitude worse\nin modern times is the much greater volatility of the relative values the\npublic places on gold. Gold's possible future use as a high-technology con-\nductor and as a middle class consumption good for a rapidly awakening\nOrient, coupled with its long term fixity of supply, has made gold a tre-\nmendously speculative asset by historical standards. In sharp contrast,\nunder a labor standard with free banking, a jump in the relative value of\ngold would simply reduce the amount of gold -- but not labor -- one could\nget in return for his dollar. Wage and employment levels would remain unaffected\nby the shift.\nHistorically, the most serious practical defect in the gold standard\nappears because of wartime suspensions of convertibility rights. During\nmajor wars, the executive branch of government has the justifiable power to\nfinance expenditures by expanding the currency supply, thus taxing preexist-\ning currency at will through the familiar inflation tax. To do this, the\ngovernment must, of course, suspend convertibility. The resumption of con-\nvertibility at historical conversion rates is the root cause of the worst\ndepressions in world history. Such resumptions inevitably forced price\nlevels back to around prewar levels as the relative price of gold had little\n15\nreason to fall from prewar levels. Monetary authorities in each postwar decade\n(1820's, 1870's, 1920's) had hopefully bet that the free market, equilibrium\nreal price of gold had, for some reason or another, fallen at least 50% although no\ngold discoveries occurred during these periods. The bets where based more\non wishful thinking than anything else. In any case, the gradual increase\nin demand for gold stocks occasioned by these returns to the gold standard\neach, inevitably, led to gradual decreases in the world price level and de-\npressions. (The best economists, and informed speculators, were well-aware\nof all this. Ricardo preached bullionism to save gold reserves prior to\nresumption in the 1820's. Keynes preached England's continuance of the gold\nexchange standard for the same reason. Fisher, as we have said, preached a\nvariable gold standard and fixed level of commodity prices. So did Newcomb\nin 1879. All were ignored. Speculators after Europe's return to the gold\nstandard was completed in 1928 believed, correctly, that the only hope for\nthe world economy was for the U.S. to induce, through domestic inflation, a\nlarge outflow of gold to support Europe's new gold demands. They bid up the\nprice of shares in U.S. companies in expectation of the correct, stimula-\ntive, U.S. policy. But our ill-conceived monetary policy in mid-1929, one\ndesigned to reduce stock market speculation, signalled the unwillingness of\nthe U.S. to sustain such a boom, and the world economy, quite naturally,\ncollapsed, with the informed speculators getting in and out at just the\nright times, leaving everyone else taking a bath. I would expect a very\nsimilar sequence if Europe were to now return to the gold standard.)\nAn important advantage of a labor standard in this regard is that a\nresumption shock under a labor standard would have a single, one-shot\neffect on the wage level. Consequently, most all laborers would recognize\n18\ncreated shortages of money in the case of an exogenously increasing gold base and\nsecular inflation or (b) a liquidity trap economy subject to a vicious,\nendless spiral downward in prices and interest rates. (This is not com-\nmonly known; it's based on a fallacy in Keynesian logic. I'll send a paper\non request. The dynamic story goes: prices fall a little. This lowers\nreal profit rates a little. This in turn increases the demand for money\ndespite the reduced transactions-demand for money because of the high\ninterest sensitivity of the demand for money at low interest rates. This\nlowers prices some more and the sequence is repeated until the price level\nreaches zero!)\nIf, however, only government-produced money, i.e. currency, were con-\nstrained by this gold reserve requirement, and if all quantity restraints\nwere taken off the existing banking system, the new system being based on\ncompetitive banking with convertibility into U.S. currency, then these de-\nfects would not exist. We would still, however, be subject to unintended\nvariations in the currency-gold stock and in the demand for government cur-\nrency relative to other forms of money. So there are many \"ifs\" for a gold\nreserve system to avoid some very large costs; and, even when the condi-\ntions are met, the system is less stable and requires more governmental\nwisdom than a labor standard. The same, of course, could be said for any\nvariant of our current system in which we remove all constaints on our banks\nand have the government control only the supply of its own currency.\n16\nthat all labor services after resumption was worth much less money than\nduring the war and that the universally lower money wages would buy about\nthe same basket of consumer goods as their previous wages did. It follows\nthat postwar resumption at the original exchange rate would induce almost\nno inefficient unemployment. It could therefore be automatically imposed\nat the official ends of our future, hopefully infrequent, wars. Guaranteed,\nimmediate postwar resumption would have the added advantage of preventing\npost-war recessions borne out of the expectation of lower future prices and\nwages. Advancing such periods of expected deflation to wartime converts\nthe social cost of postwar recessions into the social benefit of decreasing\nthe real cost of wartime finance.\nC. Gold Exchange Standards\nGold exchange standards, under which we provide gold convertibility\nfor foreigners but not ourselves (in order to conserve on gold supplies)\nhave none of the advantages of domestic convertibility standards. We would,\nlike in both postwar periods of this century, have central-bank rather\nthan private determination of our money supplies. As a result, we would\nsuffer from the same susceptibility to exogenous shocks that we have under\nour current system.\nWhile the system would provide some, at least temporary, discipline on\nmonetary authorities, I don't believe that they need it. Their job is hard\nenough without it. For example, if the authorities had to maintain such\nconvertibility during the 1970's in the face of the gigantic excess demand\nfor gold at an average of $35, they would have had to deflate in a way very\nsimilar to the way a classical gold standard in order to maintain our gold\n17\nreserve. The appropriate monetary policy in the 1970's was stable growth\nexcept for upward jumps immediately following the oil price jumps. While\nthe authorities certainly missed the mark by letting money supplies rise\nonly gradually and giving us a costly secular-inflation, at least they did\nnot give us the hair-raising depression that we would have had under the\ndiscipline of the gold or gold exchange standard.\nIt's true that we could, under a flexible gold exchange standard, ad-\njust the price of gold with market conditions. But we would have no\n\"standard\" at all if we continually adjusted the price of gold. We would\njust have our current, inconvertible, fiat money economy. And adjusting\nthe price of gold in jumps rather than continuously would provide no obvious\nbenefits to anyone except gold speculators, monetary authorities, and\ninternational economists. We would have the same business cycle, the same\nartificial scarcities of domestic money supplies and dependence on monetary\nauthorities; and approximately the same incentive to inflate as we have\nunder the current, slightly more flexible, monetary system.\nD. Gold Reserve Systems\nGold reserve systems limit the supplies of certain kinds of money to\nfixed multiples of certain gold stocks. An excess of existing over required\ngold supplies makes the system behave in the same, unconstrained fashion as\nour current system. If and when the constraint is reached, we tie the hands\nof our monetary authorities so that they are unable to respond to reces-\nsionary shocks. Only extreme monetarists appreciate this kind of discipline.\nAnd even if monetary authorities had no control of the gold base and the\nmonetarist judgment that business cycles are largely a Fisherian \"Dance of\nthe Dollar\" were correct, we would still suffer from either (a) artificially\nREFERENCES\n1. Fisher. Irving, Stabilizing the Dollar, New York, 1920\n2. Newcomb, Simon, \"The Standard of Value\" North American Review, Vol. CXXIX,\n1879, pp.233-237\n3. Thompson, Earl, \"The Theory of Money and Income Consistent with Orthodox\nValue Theory\", in Essays in Honor of Lloyd Metzler, eds. G. Horwich and\nP. Samuelson, New York, 1974\n4.\n, \"The Optimal Role of the Government in a Competitive Economy\nwith Transaction Costs\" in American Re-evolution, ed. R. Auster, Tucson,\n1977\nTHE WHITE HOUSE\nWASHINGTON\nDecember 21, 1982\nMEMORANDUM FOR JAMES A. BAKER III\nFROM:\nROGER B. PORTER\nRBP\nSUBJECT:\nExpiration of the Clean Air Act and Other\nEnvironmental Statutes\nAt this morning's senior staff meeting a question came\nup regarding what would happen if the Clean Air Act Amendments\nwere not passed in the lame duck session. Since the meeting\nI have discovered the following.\nMost environmental statutes have multi-year funding\nauthorizations. The statutes do not have sunset provisions.\nThus, the regulatory provisions are not affected by the\nexpiration of the funding authorization. The Environmental\nProtection Agency and the Department of Justice continue to\nenforce environmental laws and regulations even if the Congress\nfails to authorize expenditures. The appropriations committees\nhistorically continue to fund environmental programs and, absent\na point of order, funds are provided.\nThe Clean Air Act has already received funds in the HUD-\nIndependent Agencies appropriation bill which passed in this\nsession of the Congress. Thus, failure by the Congress to\nreauthorize the Clean Air Act will not affect enforcement of\nthe regulatory provisions.\nTHE WHITE HOUSE\nWASHINGTON\nDecember 2, 1982\nMEMORANDUM FOR EDWIN MEESE III\nEDWIN L. HARPER\nFROM:\nROGER B. PORTER\nRBP\nSUBJECT:\nContract Sanctity\nConferees will meet on Tuesday, December 7, to resolve the\ndifferences between the House and Senate versions of the\nCommodity Futures Trading Act of 1982. An issue of primary\nconcern to the Administration is the contract sanctity provision\ncontained in the Senate bill.\nSenator Durenberger succeeded in attaching to the Senate bill an\namendment which would prohibit the President (except when he\ndeclares a national emergency or Congress declares war) from\nabrogating contracts for the foreign sale of agricultural\ncommodities, provided the contracts were entered into before\nthe announcement of export restrictions and delivery was called\nfor within 270 days of the date of the contract. A motion to\ntable the Durenberger amendment failed by a vote of 27 to 66.\nThe State Department proposes to send a letter to the conferees\noutlining the Administration's opposition to the Durenberger\namendment. The draft letter presents a sound foreign policy\nargument against impairing the President's flexibility to respond\nto aggressive behavior by other countries. However, it fails to\nmake the point that is likely to carry the most weight with the\nconferees who are members of the House and Senate Agriculture\nCommittees. Enacting the Durenberger language will remove the\nincentive for the Soviets to negotiate a new long-term grain\nagreement that obligates them to buy more grain from the U.S.\nThe Administration's outright opposition to the Durenberger\nprovision on foreign policy grounds probably will not be\nsufficient to get the Senate conferees to retreat from their\nposition on contract sanctity. The House conferees are expected\nto recede to the Senate on the Durenberger language. Therefore,\nunless some accommodation is reached, the President is likely to\nbe confronted with an unacceptable bill that could well be\nveto-proof. A veto (or pocket-veto) would invite intense\nreaction from farmers who have made contract sanctity their\nbattle cry.\nOne strategy for reducing the chances of an unattractive\nconfrontation on this matter would be to communicate to the\nconferees that:\nThe Administration is prepared to enter into negotiations\non a new grain agreement with the Soviet Union this summer;\nEnacting the Durenberger language would remove any\nincentive that the Soviets may have to join in such\nnegotiations.\nIf the conferees are truly interested in assisting the\nAdministration in its pursuit of increased agricultural\ntrade with the Soviet Union, they should reject the\nSenate's contract sanctity provision.\nOther alternatives for avoiding a confrontation include:\nExtending the Soviet delivery assurances that lapsed on\nNovember 30 for 30-60 days in return for the conferee's\ndropping the Durenberger language.\nEncouraging the conferees to couch the contract sanctity\nprovision in \"sense of the Congress\" language.\nOPD memos\nTHE WHITE HOUSE\nWASHINGTON\nJune 27, 1982\nMEMORANDUM FOR JAMES A. BAKER III\nFROM:\nROGER B. PORTER\nSUBJECT:\nMeeting with the President on the U.S.-U.S.S.R.\nGrain Agreement - June 28, 1982\nOn Monday, June 28, 1982, at 2:00 p.m. the President is sched-\nuled to meet with the Cabinet Council on Food and Agriculture to\ndiscuss whether to commence negotiations with the Soviet Union for\na long-term grain agreement.\nLike most interesting policy issues, the decision of whether\nto resume negotiations involves a host of considerations. This\nissue is at the intersection of foreign, domestic, and economic\npolicy.\nThe issue paper circulated last Friday outlines the princi-\npal facts and alternatives along with their advantages and dis-\nadvantages. This brief memorandum supplements that paper and\nattempts to highlight five considerations that I find useful in\nthinking about the issue. They involve both substance and per-\nceptions.\n1. Two past presidential actions and statements will importantly\nshape the contour of this decision.\nIn December 1981, in the wake of the imposition of martial\nlaw in Poland, the President announced a series of sanc-\ntions against the Soviet Union including postponing nego-\ntiations for a long-term grain agreement.\nOn March 22, 1982, in his most important agricultural\naddress since becoming President, Ronald Reagan outlined\nhis export policy. His most noteworthy announcement\n(which I am told isnow painted on the side of every\nbarn in the Midwest grain belt) was that he would not\nembargo (read restrain exports) grain shipments to the\nSoviet Union except in the case of a total embargo on\nall U.S. trade with the Soviets.\nO\nThus, if the President approves resuming negotiations the\nEuropeans will perceive such a move as easing the sanctions\nimposed last December.\nBut, if the current agreement is allowed to expire on\nSeptember 30, there will be no effective restraint on\nSoviet purchases in U.S. grain markets.\n-2-\nThe President's March 22 statement leaves little room for\naffecting Soviet behavior in U.S. grain markets in the\nabsence of a total trade embargo, a highly unlikely event.\n2. Substantively, whatever decision is made will likely affect\nU.S. total grain exports little in the short-term, but could\naffect the incentives for other countries to expand their\ngrain production over the longer term.\nCurrent world grain stocks are high and the prospects for\na good worldwide harvest are good. We are not dealing\nwith a shortage situation, as in 1975.\nThe Soviets have already diversified their sources since\nthe 1980 embargo entering into several long-term agreements\nwith various countries. They should be able to get most\nof what they want without having to rely on the U.S.\nThe problems of Soviet agriculture are legion as I tried\nto point out in the issue paper circulated on Friday.\nBut the fact that the Soviets have had three bad harvests\nin succession does not guarantee that this pattern will\npersist.\nThey have historically had an average of one bad harvest\nevery three years.\nThe important question, in the short-term, is what effect\nhaving a grain agreement would make on total Soviet pur-\nchases. If we have an agreement that requires the Soviet's\nto purchase 12 million tons, and they would have purchased\nat least 12 million tons without an agreement, then such\nan agreement does not increase their total demand or total\npurchases on world markets.\nEffectively, the grain trade is a world market. If the\nSoviets buy from others, then we will end up selling to\nthird countries, in the short term.\nHowever, an agreement can influence export trading patterns\nin the longer-term. If countries believe that they can\nget a secured, guaranteed part of the Soviet market (as\nCanada and Argentina seem to believe, with good reason),\nthen they are likely to increase their production in\nfuture years, thereby increasing world production. Thus,\nin the longer-term, who gets the Soviet market can make a\nreal difference.\n3. The grain agreement is a major issue in the agricultural com-\nmunity, quite possibly the major issue for this year. This\n-3-\nissue has seriously damaged the two immediate predecessors\nof President Reagan (Carter and Ford) in the farm community.\nThe agriculture community, by whatever measure, is in\ndifficulty. Farm income is down sharply. Relatively\nlow prices (for wheat and feedgrains), increasing costs,\nand high interest rates, have hurt farmers.\nAmong those in the agricultural community grain producers\nare the least well off. Livestock producers, dairy far-\nmers, and cotton and tobacco growers are doing relatively\nbetter.\nThe administration's response has been to oppose bailout\nmeasures and to emphasize that we are supporting an aggres-\nsive export policy. This was the heart of the President's\nMarch 22 statement.\nOur position on the negotiation of a long-term grain agree-\nment is being watched closely in the agricultural community\nand farmers are viewing it a something of a litmus test\nto test the administration's commitment to an aggressive\nexport policy.\n4. The Europeans would prefer that we not sign a long-term agree-\nment with the Soviets and will likely expend much rhetoric\non the issue, but are less likely to fall on their sword on\nthis question.\nThe current agreement does not involve granting the Soviets\nany credits. The agreement forces the Soviets to buy our\ngrain with hard currency at world market prices.\nThe alternative to an extended or renewed grain agreement\nis not to deny the Soviets U.S. grain. In the absence of\nan agreement the Soviets will be free to purchase all the\nU.S. grain they want. The Europeans do not expect the\nPresident to go back on his March 22 statement. They\nall have agricultural communities that they must pay\nattention to as well.\n5. The timing of this issue could hardly be worse. The June 18\npipeline sanctions decision and Secretary Haig's resignation\nhave focused much attention on this area.\nThis is not a good time to make a decision. And there is no\nimminent action forcing event. The current agreement extends\nuntil September 30. There is considerable merit in the Presi-\ndent taking this under advisement.\n- 4 -\nI am leaving this afternoon for an early Monday morning\naddress in Minneapolis but will be back in Washington in time\nfor the 2:00 p.m. meeting. I will call as soon as I return in\nthe event that you have any questions.\nAs you can tell three worries dominate my thinking on this\nissue:\n1. That there is the potential for real political damage\nin the traditionally Republican farm community if the farmers\nfeel they have once more had their interests sacrificed for\nforeign policy objectives.\n2. That the Soviets, who are shrewd traders and have always\nsought to get the best buys on international markets by the tim-\ning of their purchases (witness 1972), will prove difficult in\na situation where they are effectively unrestrained either\nbecause there is no agreement or because of the March 22 export\npolicy statement.\n3. That over the long-term, the U.S. could simply become\nthe residual supplier for the lucrative Soviet market and that\nthe attraction of that market may well stimulate greater pro-\nduction in other countries. Rather than serving as the world's\nmost aggressive and successful grain exporters, we might well\nbecome to an even greater extent than now the holder of the\nworld's grain stocks.\nCM/242\nISSUE PAPER\nU.S.-U.S.S.R. GRAIN AGREEMENT\nIssue\nThe current U.S.-U.S.S.R. Grain Agreement will expire on\nSeptember 30, 1982. The Administration must decide whether it\nwants a formal arrangement (and, if so, what kind) to govern\nU.S.-U.S.S.R. grain trade after September 30.\nI. Background\nU.S.-U.S.S.R. Grain Trade Prior to 1975. An unfavorable\nclimate, poor soil, backward technology, and an extremely\ninefficient agricultural system make periodic crop failures in\nthe Soviet Union a virtual certainty. As a result, the Soviets\nhave, during the last twenty years, imported increasing amounts\nof grain to accommodate their domestic needs.\nSoviet purchases from the U.S. were relatively modest until\n1972, when the prospect of a major crop failure prompted them\nto buy, over a two to three month period, 19 million metric\ntons (mmt) of U.S. grain, including one-fourth of the total\nU.S. wheat crop. The Soviets made their purchases quietly and\nearly, before prices adjusted to the sudden increase in demand.\nThe Soviets also were able to capitalize on USDA's wheat export\nsubsidy program and a recently negotiated credit arrangement.\nThese circumstances, as well as the domestic market disruption\ncaused by the massive grain purchases, led critics to label the\nU.S. sales as the \"great Soviet grain robbery.\"\nThe U.S.-U.S.S.R. Grain Agreement. The summer of 1975 brought\nnew reports of a looming Soviet crop failure. These reports,\ncoupled with the desire to avoid a repeat of the 1972 scenario,\nprompted the Ford Administration to suspend grain sales to the\nSoviet Union until an arrangement could be worked out that\nwould prevent Soviet disruption of U.S. domestic markets and\nguarantee U.S. farmers a reasonable share of the Soviet market.\nThe ensuing negotiations with the Soviet Union produced an\nagreement with the following provisions:\n2\nThe Soviets agreed to purchase 6 mmt of U.S. wheat and\ncorn, in approximately equal proportions, during each of\nthe five years covered by the agreement;\nThe Soviets can purchase up to 2 mmt more of U.S. grain\nduring any year without consultations with the U.S.;\nThe U.S. agreed not to embargo exports of up to 8 mmt of\ngrain to the Soviet Union;\nThe Soviets are required to consult with the U.S. (to\ndetermine a higher supply level) before buying more than\n8 mmt of grain in any given year;\nThere is an escape clause for the U.S. in the event of a\nmajor U.S. supply shortage;\nSoviet purchases must be made at prevailing market prices\nand in accordance with normal commercial terms.\nThe Soviets agreed to ship the grain under the terms of\nthe U.S.-U.S.S.R. Maritime Agreement;\nThe Soviets are required to space their grain purchases\nand shipments as evenly as. possible over each 12-month\nperiod.\nSince the agreement, there has been greater stability in world\ngrain trade and in Soviet purchasing patterns. Under the\nagreement, the U.S. has expanded its share of the Soviet\nmarket (see Appendix). Over this period, Soviet demands for\ngrain have increased more rapidly than their production,\nresulting in a higher level of Soviet grain imports.\nThe Soviet Grain Embargo of 1980. On January 4, 1980, in\nresponse to the Soviet military invasion of Afghanistan,\nPresident Carter cancelled contracts for the sale of 13.5 mmt\nof U.S. corn and wheat to the Soviet Union. The U.S. also\ndenied the Soviets access to an additional 3.5 mmt of grain\nwhich had been offered to, but not yet purchased by, the\nSoviets. Finally, shipments of soybeans, broilers, and some\nother agricultural products were halted.\nThe Soviets were able to minimize the effects of the embargo by\ndrawing down their grain stocks and by increasing grain,\nsoybean, rice, flour, and meat imports from Argentina, Canada,\nAustralia, and the European Economic Community.\n3\nThe Soviets have since entered into new long-term purchasing\nagreements with Argentina, Brazil, Canada, Hungary, and\nThailand, in an attempt to diversify their sources of supply,\nresulting in a declining share of the Soviet market for U.S.\nfarmers.\nIn April 1981, President Reagan lifted the Soviet grain\nembargo. This was followed by an agreement in August to extend\nthe expiring U.S.-U.S.S.R. grain accord for an additional year,\nthrough September 30, 1982. In October 1981, the U.S. offered\nthe Soviets an additional 15 mmt of grain, raising to 23 mmt\nthe amount of U.S. grain available to the Soviets during fiscal\nyear 1982. To date, the Soviets have purchased a total of\n13.9 mmt of U.S. wheat and corn.\nU.S. Sanctions Against the Soviets in the Aftermath of the\nPolish Declaration of Martial Law. Discussions concerning\nnegotiation of a new U.S.-U.S.S.R. long-term grain agreement\nwere under way within the Administration when the Polish\ngovernment declared a state of martial law in December 1981.\nWhen the Soviet Union failed to respond to U.S. urgings to help\nrestore basic human rights in Poland, the President announced a\nnumber of sanctions against the Soviets, including postponement\nof negotiations on a new grain agreement and suspension of\nnegotiations on a new maritime agreement.\nII. Discussion\nSoviet Import Demands. Soviet grain production has declined\nsharply during the past three years, after more than a decade\nof steady growth. Following a record crop of 237 mmt in 1978,\nthe Soviet harvest fell to 179 mmt in 1979, 189 mmt in 1980,\nand reportedly to 158 mmt in 1981, nearly one-third below\ntarget. To avoid massive shortages, the Soviets have imported\nmore than 100 mmt of grain since June 1979. During the\nmarketing year ending this June, Moscow is expected to import a\nrecord 45 mmt of grain.\nSoviet hard-currency outlays this year for all agricultural\ncommodities -- including grain, other feedstuffs, meat, sugar,\nand vegetable oil -- will probably reach some $12 billion, up\nabout $1 billion from last year, and a sharp increase from the\nroughly $8 billion spent in 1980. Altogether, food imports now\naccount for roughly 40 percent of total Soviet hard-currency\npurchases.\nEven with a strong recovery in domestic grain production,\nMoscow will continue to import large amounts of grain, an\n4\nestimated 41 mmt of grain during the next marketing year\n(July 1982-June 1983). The ultimate level of Soviet grain\nimports during the next marketing year will depend on:\nThe size of the 1982 Soviet grain crop. USDA recently\nreduced its projection for the 1982 Soviet grain crop\nfrom 200 to 185 mmt;\nThe extent to which the Soviets decide to maintain or\nexpand livestock inventories;\nHard-currency constraints. Increasing Soviet hard-\ncurrency constraints or a decision by Western bankers to\ncurtail short-term credits could hamper Moscow's import\nintentions;\nU.S.-U.S.S.R. trading relations;\nThe extent to which the Soviets will allow increased\ndependence on imported grains; and\nSoviet port capacity. Currently Soviet grain import\ncapacity is 45-50 mmt per year.\nSoviet officials recently announced ambitious production goals\nfor grain and livestock for the remainder of the 1980s. They\nalso expressed their intention to reduce imports of foodstuffs\nfrom capitalist countries. The history of Soviet agriculture,\nhowever, suggests that achieving increased livestock production\ngoals will be extremely difficult if the Soviets reduce grain\nimports.\nU.S.-U.S.S.R. Grain Agreement in the Context of the World Grain\nMarket. It is doubtful that a long-term grain agreement\nbetween the Soviet Union and the United States would have much\neffect on the total U.S. share of world grain trade during the\nnext marketing year. However, the existence or absence of such\nan agreement is likely to have a significant impact on world\ngrain trading patterns in future years. If, by failing to\nnegotiate a formal trading arrangement, the Soviets were\ndiscouraged from satisfying their import demands in the U.S.\nmarket, they would have to seek new sources of supply. The\nprospect of servicing a consistently large buyer, such as the\nSoviet Union, would prompt other exporting countries to further\nincrease their production. (Since the 1980 Soviet grain\nembargo, Argentina and Canada have increased their grain\nproduction by roughly 25 percent.) This increased production\nwould compete with U.S. grain in world markets, reducing the\nU.S. share of the growth in global grain trade.\n5\nU.S. Foreign Policy Considerations. The U.S. is pursuing, and\nencouraging its allies to pursue, a general policy of economic\nrestraint with the U.S.S.R., based upon fair burden sharing in\nthe West. A government-to-government agreement, especially one\nperceived as newly-negotiated, that promotes grain exports,\nwould be regarded as an exception to that policy.\nMore specifically, negotiations with the Soviets would signal\nan end to one of the President's measures against the U.S.S.R.\nin response to the Poland crisis, undercutting the general\npackage of Poland-related sanctions, and impling that the\nsituation there has improved and that the U.S. is prepared to\nadopt a \"business as usual\" stance. The Soviets could be\nexpected to promote this interpretation vigorously.\nResuming negotiations would conflict with the decision to\nextend extraterritorially sanctions on oil and gas equipment\nand technology. In the absence of real changes in Poland,\nresuming negotiations would undermine U.S. credibility on\nburden sharing and U.S. efforts to induce its allies to\nexercise restraint in credit and trade arrangements with the\nU.S.S.R.\nU.S. Domestic Considerations. The U.S. farm sector is\nexperiencing serious economic hardships due to over-abundant\ngrain supplies, high interest rates, and a cost/price squeeze.\nPressure is being applied on the Administration to provide\nvarious forms of assistance for farmers, including paid land\ndiversions, export subsidies, increased food assistance, and\nhigher price supports.\nAll these programs entail substantial budget outlays and lead\nto increased government interference in agriculture. The\nnegotiation of a new long-term U.S.-U.S.S.R. grain agreement\nthat guarantees a larger share of the Soviet market for U.S.\nfarmers is virtually the only cost-free, market-oriented step\nthe Administration can take to help the farm community. It\nis also consistent with the central feature of the Admini-\nstration's farm policy -- increasing agricultural exports.\nFarmers regard the U.S.-Soviet grain agreement issue as the\nlitmus test of the Administration's commitment to the\nagricultural sector.\nThe U.S. maritime industry and labor share a common concern\nover the arrangements for shipping grain from the U.S. to the\nSoviet Union. In the absence of a new U.S.-U.S.S.R. maritime\nagreement, U.S.-flag vessels would be effectively precluded\nfrom participation in carrying grain to the U.S.S.R. Such a\ndevelopment could have an adverse impact on the cooperation of\nU.S. maritime labor in implementing any grain agreement.\n6\nIII. Options\nOption 1: Allow the existing U.S.-U.S.S.R. grain agreement to\nexpire without providing for any formal agricultural\ntrading arrangement between the two countries after\nSeptember 30, 1982.\nAdvantages:\nWould be consistent with the President's policy of\npostponing negotiations on a new long-term grain\nagreement with the Soviets until there were\nimprovements in the Polish situation.\nCould be presented as the Administration's attempt to\nreduce government intervention in the international\nmarketing of U.S. agricultural products.\nDisadvantages:\nWould give the Soviets unrestricted access to the U.S.\ngrain market and could lead to disruption of the U.S.\ngrain market if the Soviets were to resume their\nerratic purchasing behavior of the early 1970s.\n-\nFarmers would view lack of an agreement as eliminating\ntheir chances for maximizing their share of grain\nsales to the Soviet Union, and this would be perceived\nas undermining the President's commitment to help\nincrease agricultural exports.\nCould lead to the lowest level of U.S. grain exports\nunder any of the options, and thus increase federal\noutlays for agricultural price support and production\ncontrol programs.\nWould eliminate one more ongoing U.S.-U.S.S.R. tie,\nand could affect the atmosphere of the upcoming U.S.- -\nU.S.S.R. summit.\n7\nOption 2: Extend the existing U.S.-U.S.S.R. grain agreement\nfor one year.\nAdvantages:\nWould maintain a formal trading arrangement that would\nassure U.S. farmers of some access to the Soviet\nmarket and insulate domestic users from possible\nSoviet disruption of U.S. markets.\nWould continue the status quo, thereby blunting the\ncharge that the U.S. was making a concession to the\nSoviets in the absence of an improvement in the Polish\nsituation.\nWould allow for a more positive trade atmosphere with\nthe Soviets than there would be in the absence of an\nagreement, and thus would leave open the possibility\nof entering into negotiations on a new long-term grain\nagreement subsequent to an improvement in the Polish\nsituation.\nDisadvantages:\nWould be perceived by U.S. farmers as harming their\nchances for maximizing their share of grain sales to\nthe Soviet Union and thus undermine the President's\ncommitment to help increase farm exports.\nCould be perceived as a weakening of U.S. sanctions\nimposed against the Soviets as a result of the Polish\nsituation, and conflicting with the recent decision on\nsanctions on oil and gas equipment and technology.\nCould undermine ongoing U.S. efforts to enlist the\nsupport of its allies in restricting government\ncredits to the Soviet bloc.\n8\nOption 3: Extend for two or more years the existing\nU.S.-U.S.S.R. grain agreement amended to provide\nhigher minimum purchase requirements.\nAdvantages:\nWould insulate domestic consumers from possible Soviet\ndisruption of U.S. markets for a longer period.\nWould provide U.S. farmers with a larger share of\ngrain sales to the Soviet Union and thus demonstrate\nthe President's commitment to increasing agricultural\nexports.\nCould promote U.S. foreign policy objectives by\nincreasing Soviet dependency on grain imports from\nthe U.S.\nDisadvantages:\nWould signal a U.S. retreat from the sanctions imposed\nin response to the Polish situation and could undercut\nour efforts to secure changes in the policies of the\nJaruzelski regime.\nWould undermine ongoing U.S. efforts to enlist the\nsupport of its allies iñ restricting government\ncredits to the Soviet bloc.\n9\nOption 4: Negotiate a totally new U.S.-U.S.S.R. grain\nagreement.\nSuch an agreement might include four basic features:\n1. A minimum purchase level for the grains covered under\nthe agreement. The minimum purchase level would be\nadjusted each year on the basis of a two-year moving\naverage of actual Soviet grain purchases.\n2. A \"prior consultation level\" -- expressed as a\npercentage above the minimum purchase level --\nbeyond which the annual Soviet purchases could\nnot go, without prior consultation with the U.S.\n3. A provision to encourage the Soviets to buy\nvalue-added agricultural products.\n4. A provision that any decision on supply availability\nabove the prior consultation level would require\ncommitments on both sides to purchase and sell\nspecific amounts.\nAdvantages:\nWould achieve a greater integration of the U.S. and\nSoviet trading systems\n-\nWould assure U.S. farmers a reasonable share of the\nSoviet market, based on actual levels of grain trade.\nWould force the Soviets to be more forthcoming with\nrespect to their buying intentions.\nDisadvantages:\nWould signal a U.S. retreat from the sanctions\nimposed in response to the Polish situation, and\ncould undercut our efforts to secure changes in the\npolicies of the Jaruzelski regime.\nWould require protracted negotiations that could\nextend beyond the expiration of the current agreement.\nWould provide the Soviets much greater opportunity to\npress for stronger supply guarantee provisions.\nAPPENDIX\nU.S. SOVIET GRAIN TRADE 1973-1982\nTotal USSR\nUS Grain\nUS Share of Total\nGrain Imports\nExports to\nUSSR Grain Imports\n(mmt)\nUSSR\n(%)\n(mmt)\nFY 1973\n22.5\n14.1\n63\nFY 1974\n5.7\n4.5\n79\nFY 1975\n7.7\n3.2\n42\nFY 1976\n25.6\n14.9\n58\nFY 1977\n8.4\n6.1\n73\nFY 1978\n22.5\n14.6\n65\nFY 1979\n19.6\n15.3\n78\nFY 1980\n27.0\n8.3\n31\nFY 1981\n38.8\n9.5\n24\nFY 1982\n45.0\n17.8\n40\n(projected)"
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