I want to talk to you tonight about some strong actions that I have ordered today with regard to the American economy-actions which will be important to you in terms of the wages you earn and the prices you pay.
But first, since we have been hearing so much about what is wrong with our economy over the past few months, let us look at some of the things that are right about the American economy.
We can be proud that the American economy is by far the freest, the strongest, and the most productive economy in the world. It gives us the highest standard of living in the world. We are in the middle of one of the biggest, strongest booms in our history. More Americans have jobs today than ever before. The average worker is earning more today than ever before. Your income buys more today than ever before.
In August 1971, I announced the New Economic Policy. Since then, the Nation's output has increased by a phenomenal 11 ½ percent--a more rapid growth than in any comparable period in the last 21 years. Four and a half million new civilian jobs have been created--and that is more than in any comparable period in our whole history. At the same time, real per capita disposable income--that means what you have left to spend after taxes and after inflation--has risen by 7½ percent in that period. This means that in terms of what your money will actually buy, in the past year and a half your annual income has increased by the equivalent of 4-weeks' pay.
Now, when we consider these facts, we can see that in terms of jobs, of income, of growth, we are enjoying one of the best periods in our history.
We have every reason to be optimistic about the future.
But there is one great problem that rightly concerns every one of us, and that is, as you know, rising prices, and especially rising food prices. By the end of last year, we had brought the rate of inflation in the United States down to 3.4 percent. That gave us the best record in 1972 of any industrial country in the world. But now prices are going up at unacceptably high rates.
The greatest part of this increase is due to rising food prices. This has been caused in large measure by increased demand at home and abroad, by crop failures abroad, and as many people in various areas of the country know, by some of the worst weather for crops and livestock that we have ever experienced. But whatever the reasons, every American family is confronted with a real and pressing problem of higher prices. And I have decided that the time has come to take strong and effective action to deal with that problem.
Effective immediately, therefore, I am ordering a freeze on prices.1 This freeze will hold prices at levels no higher than those charged during the first 8 days of June. It will cover all prices paid by consumers. The only prices not covered will be those of unprocessed agricultural products at the farm levels, and rents.
1 By Executive Order 11723 of June 13, 1973.
Wages, interest, and dividends will remain under their present control systems during the freeze. Now, the reason I de- cided not to freeze wages is that the wage settlements reached under the rules of phase III have not been a significant cause of the increase in prices. And as long as wage settlements continue to be responsible and noninflationary, a wage freeze will not be imposed.
The freeze will last for a maximum of 60 days. This time will be used to develop and put into place a new and more effective system of controls which will follow the freeze. This new Phase IV [set] of controls will be designed to contain the forces that have sent prices so rapidly upward in the past few months. It will involve tighter standards and more mandatory compliance procedures than under Phase III. It will recognize the need for wages and prices to be. treated consistently with one another.
In addition to food prices, I have received reports from various parts of the country of many instances of sharp increases in the price of gasoline. And therefore, I have specifically directed the Cost of Living Council to develop new Phase IV measures that will stabilize both the prices at the retail level of food and the price of gasoline at your service station.
In announcing these actions, there is one point I want to emphasize to every one of you listening' tonight. The Phase IV that follows the freeze will not be designed to get us permanently into a controlled economy. On the contrary, it will be designed as a better way to get us out of a controlled economy, to return as quickly as possible to the free market system.
We are not going to put the American economy into a straitjacket. We are not going to control the boom in a way that would lead to a bust. We are not going to follow the advice of those who have proposed actions that would lead inevitably to a permanent system of price and wage controls, and also rationing.
Such actions would bring good headlines tomorrow, and bad headaches 6 months from now for every American family in terms of rationing, black markets, and eventually a recession that would mean more unemployment.
It is your prosperity that is at stake. It is your job that is at stake.
The actions I have directed today are designed to deal with the rise in the cost of living without jeopardizing your prosperity or your job.
Because the key to curbing food prices lies in increasing supplies, I am not freezing the price of unprocessed agricultural products at the farm level. This would reduce supplies instead of increasing them. It would eventually result in even higher prices for the foods you buy at the supermarket.
Beginning in 1972, we embarked on a comprehensive new program for increasing food supplies. Among many other measures, this has included opening up 40 million more acres for crop production. In the months ahead, as these new crops are harvested, they will help hold prices down. But unfortunately, this is not yet helping in terms of the prices you pay at the supermarket today, or the prices you will be paying tomorrow.
One of the major reasons for the rise in food prices at home is that there is now an unprecedented demand abroad for the products of America's farms. Over the long run, increased food exports will be a vital factor in raising farm income, in improving our balance of payments, in supporting America's position of leadership in the world. In the short term, how- ever, when we have shortages and sharply rising prices of food here at home, I have made this basic decision: In allocating the products of America's farms between markets abroad and those in the United States, we must put the American consumer first.
Therefore, I have decided that a new system for export controls on food products is needed--a system designed to hold the price of animal feedstuffs and other grains in the American market to levels that will make it possible to produce meat and eggs and milk at prices you can afford.
I shall ask the Congress, on an urgent basis, to give me the new and more flexible authority needed to impose such a system. In exercising such authority, this will be my policy: We will keep the export commitments we have made as a nation. We shall also consult with other countries to seek their cooperation in resolving the worldwide problem of rising food prices. But we will not let foreign sales price meat and eggs off the American table.
I have also taken another action today to stop the rise in the cost of living. I have ordered the Internal Revenue Service to begin immediately a thoroughgoing audit of the books of companies which have raised their prices more than 1 1/2 percent above the January ceiling.
The purpose of the audit will be to find out whether these increases were justified by rising costs. If they were not, the prices will be rolled back.
The battle against inflation is everybody's business. I have told you what the Administration will do. There is also a vital role for the Congress, as I explained to the Congressional leaders just a few moments ago.
The most important single thing the Congress can do in holding down the cost of living is to hold down the cost of government. For my part, I shall continue to veto spending bills that we cannot afford, no matter how noble-sounding their names may be. If these budget-busters become law, the money would come out of your pocket--in higher prices, higher taxes, or both.
There are several specific recommendations I have already made to the Congress that will be important in holding down prices in the future. I again urge quick action on all of these proposals.
Congress should give the President authority to reduce tariffs in selected cases in order to increase supplies of scarce goods and thereby hold down their prices. This action will help on such scarce items as meat, plywood, and zinc. And in particular, the tariff we now have on imported meat should be removed.
Congress should provide authority to dispose of more surplus commodities now held in Government stockpiles.
Congress should let us go ahead quickly with the Alaska pipeline so that we can combat the shortage of oil and gasoline we otherwise will have. I will also soon send to the Congress a major new set of proposals on energy, spelling out new actions I believe are necessary to help us meet our energy needs and thereby lessen pressures on fuel prices.
In its consideration of new farm legislation, it is vital that the Congress put high production ahead of high prices, so that farm prosperity will not be at the cost of higher prices for the consumer. If the Congress sends me a farm bill or any other bill that I consider inflationary, I shall veto that bill.
Beyond what the Administration can do, beyond what the Congress can do, there is a great deal you can do. The next 60 days can decide the question of whether we shall have a continuing inflation that leads to a recession or whether we deal responsibly with our present problems and so go forward with a vigorous prosperity and a swift return to a free market.
You can help, by giving your Senators and Congressmen your support when they make the difficult decisions to hold back on unnecessary Government spending.
You can help, by saying no to those who would impose a permanent system of controls on this great, productive economy of ours which is the wonder of the world.
Let there be no mistake: If our economy is to remain dynamic, we must never slip into the temptation of imagining that in the long run, controls can substitute for a free economy or permit us to escape the need for discipline in fiscal and monetary policy. We must not let controls become a narcotic; we must not become addicted.
There are all sorts of seemingly simple gimmicks that would give the appearance or offer the promise of controlling inflation, but that would carry a dangerous risk of bringing on a recession, and that would not be effective in controlling inflation. Rigid, permanent controls always look better on paper than they do in practice.
We must never go down that road, which would lead us to economic disaster.
We have a great deal to be thankful for as Americans tonight. We are the best-clothed, best-fed, best-housed people in the world; we are the envy of every nation in that respect. This year, for the first time in 12 years, we are at peace in Vietnam--and our courageous prisoners of war have returned to their homes. This year, for the first time in a generation, no American is being drafted into the Armed Forces. This year, we find our prospects brighter than at any time in the modern era for a lasting peace and for the abundant prosperity such a peace can make possible.
Next Monday, I will meet at the summit here in Washington with General Secretary Brezhnev of the Soviet Union. Based on the months of preparatory work that has been done for this meeting, and based on the extensive consultation and correspondence we have had, much of it quite recently, I can confidently predict tonight that out of our meetings will come major new progress toward reducing both the burden of arms and the danger of war and toward a better and more rewarding relationship between the world's two most powerful nations.
Today, in America, we have a magnificent opportunity. We hold the future-our future--in our hands. By standing together, by working together, by joining in bold yet sensible policies to meet our temporary problems without sacrificing our lasting strengths, we can achieve what America has not had since President Eisenhower was in this office: full prosperity without war and without inflation.
This is a great goal, and working together, we can and we will achieve that goal.
Thank you and good evening.