To the Congress of the United States:
I regard achievement of the full potential of our resources--physical, human, and otherwise--to be the highest purpose of governmental policies next to the protection of those rights we regard as inalienable.
I cited this as my philosophy in my first Economic Report in January 1964. I reaffirm it today.
In the past 5 years, this Nation has made great strides toward realizing the full potential of our resources. Through fuller use and steady growth of our productive potential, our real output has risen nearly 30 percent.
Most important of all are our human resources. Today the vast majority of our workers enjoy productive and rewarding employment opportunities. For those who lack skills, we have made pioneering efforts in training. We have improved education for the young to enhance their productivity and their wisdom as citizens of a great democracy.
Our capital resources--plant and equipment-are being used intensively and have been continually expanded and modernized by a confident business community.
This has all been accomplished in an environment that preserved--indeed, enlarged-the traditional freedom of our economic system. In today's prosperous economy, our people have more freedom of choice--among jobs, consumer goods and services, types of investments, places to live, and ways to enjoy leisure.
I look upon the steady and strong growth of employment and production as our greatest economic success. In recent years, prosperity has become the normal state of the American economy. But it must not be taken for granted. It must be protected and extended
--by adopting sound and prudent policies for this year and
--by improving procedures for fiscal and monetary policy-making to meet our needs for the long run.
I shall discuss these tasks in this Report. I shall also consider how we might deal with some of our key unsolved economic problems.
• We must find a way of combining our prosperity with price stability. Reconciling these two objectives is the biggest remaining over-all economic challenge facing the Nation.
• We must more fully secure the foundations of the world monetary system and of our own balance of payments. The international monetary system has undergone important evolutionary improvements, but we must seek more effective ways of coping with the stresses that can still develop.
• We must fulfill our many unmet public needs such as good education, efficient transportation, clean air, and pure water. Quality as well as quantity is the key to a better life.
• We must share more equitably the fruits of prosperity among all our citizens. A Nation as prosperous as ours can afford to open the doors of opportunity to all. Indeed, it cannot afford to leave any citizen in poverty.
The achievements we have made and the lessons we have learned point the way for further progress.
THE RECORD OF ACHIEVEMENT
The Nation is now in its 95th month of continuous economic advance. Both in strength and length, this prosperity is without parallel in our history. We have steered clear of the business-cycle recessions which for generations derailed us repeatedly from the path of growth and progress.
This record demonstrates the vitality of a free economy and its capacity for steady growth. No longer do we view our economic life as a relentless tide of ups and downs. No longer do we fear that automation and technical progress will rob workers of jobs rather than help us to achieve greater abundance. No longer do we consider poverty and unemployment permanent landmarks on our economic scene.
CONTRIBUTION OF POLICY
Our progress did not just happen. It was created by American labor and business in effective partnership with the Government.
Ever since the historic passage of the Employment Act in 1946, economic policies have responded to the fire alarm of recession and boom. In the 1960's, we have adopted a new strategy aimed at fire prevention--sustaining prosperity and heading off recession or serious inflation before they could take hold.
• In 1964 and 1965, tax reductions unleashed the vigor of private demand and brought the economy a giant step toward its full potential.
• In 1966 and 1967, restrictive monetary and fiscal policies offset the strains of added defense spending. The adjustment was far from ideal, however, because of the delay in increasing taxes to pay the bills for the defense buildup and for continuing urgent civilian programs. In 1968, our Nation's finances were finally adjusted to the needs of a defense emergency. The Revenue and Expenditure Control Act strengthened the foundation of prosperity.
GAINS IN 5 YEARS
Aided by these policies in the past 5 years, he Nation's total output of goods and services---our gross national product--has increased by more than $190 billion, - after correcting for price changes. This is as large Is the gain of the previous 11 years.
The prosperity of the last 5 years has been accompanied by benefits that extend into every corner of our national life
--more than 8 1/2 million additional workers found jobs,
--over-all unemployment declined from 5.7 percent of our labor force to 3.3 percent,
--unemployment of nonwhite adult males dropped particularly dramatically, from 9.7 percent to 3.4 percent,
--the number of persons in poverty declined by about 12½ million-progress greater than in the entire preceding 13 years,
--the average income of Americans (after taxes and after correction for price rises) increased by $535--more than one-fifth and again more than in the previous 13 years combined,
--corporate profits rose by about 50 percent,
--wages and salaries also went up by 50 percent,
--net income per farm advanced 36 percent,
--the net financial assets of American families increased $460 billion--more than 50 percent, and
--Federal revenues grew by $70 billion, helping to finance key social advances.
Meanwhile, a solid foundation has been built for continued growth in the years ahead.
• Through Investment in Plant and Equipment. In the last 5 years, the stock of capital equipment has grown by nearly a third. Only 5 percent of manufacturing corporations report that their capacity is in excess of currently foreseen needs.
• Through Investment in Manpower. More than a million Americans have acquired skills in special training institutions or on the job--as a result of new Federal efforts.
• Through Investment in Education. College enrollment has risen by 2 1/4 million since 1963. Expenditures on all public education have increased at an average of 10 percent a year; Federal grants have almost quadrupled.
• Through Investment in Our Neighborhoods. Our urban centers are beginning to be restored as decent places to live and initial steps have been taken to help ensure construction of 26 million new or rehabilitated housing units by 1978.
DEVELOPMENTS IN 1968
Our economy had an exceptionally big year in 1968.
• Our gross national product increased by $71 billion to $861 billion. Adjusted for price increases, the gain was 5 percent.
• Payroll employment rose by more than two million persons.
• Unemployment fell by 160,000.
• The after-tax real income of the average person increased by 3 percent.
• An estimated four million Americans escaped from poverty, the largest exodus ever recorded in a single year.
• Our balance-of-payments results were the best in 11 years.
In some ways, 1968 was too big a year. Even our amazingly productive economy could not meet all the demands placed upon it. Nearly half of the extra dollars spent in our markets added to prices rather than to production. The price-wage spiral turned rapidly.
• Consumer prices rose by 4 percent and wholesale prices by 2 1/2 percent.
• Both union and nonunion wages increased about 7 percent--responding to higher costs of living and causing higher costs of production.
• Some of the extra demands for goods were met out of foreign production, and imports soared 22 percent.
The main source of the overheating was the excessive and inappropriate stimulus of the Federal budget in late 1967 and the first half of 1968. In January 1967, I pointed to the need for a tax increase. In the summer, when the upsurge was even more clearly foreseen, I urged immediate enactment of a 10-percent income tax surcharge. The subsequent delay in enactment resulted in a massive budget deficit of $25 billion for fiscal year 1968, which
--accelerated the economy beyond safe speed limits,
--weakened confidence in the dollar abroad, and
--placed a heavy burden on credit markets at home, pushing interest rates sharply higher.
Ultimate passage of the Revenue and Expenditure Control Act of 1968 at midyear brought a much needed swing to fiscal restraint. The budget now shows a surplus of $2.3 billion for fiscal 1969. Because of both greater revenues and reduced expenditures, this picture has changed dramatically since last January when we estimated a deficit of $8 billion.
Just as the overly stimulative effects of the huge budget deficit of fiscal 1968 were unmistakable, so there can scarcely be doubt that the reverse swing--of even larger size-will improve balance in our economy. But just as inappropriate fiscal stimulus took a while to cause obvious problems, so needed fiscal restraint is taking time to work its full beneficial effects on the economy.
By the time the surcharge was enacted, the forces of boom and inflation had developed great momentum. Our economy continued to advance too rapidly throughout 1968--but growth did slow from a hectic 6 1/2 percent rate early in the year to about 4 percent at yearend. The budget is now in harmony with the needs of the economy, and its welcome effects are gradually emerging.
THE PROGRAM FOR 1969