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Introduction to a Report by the Council of Economic Advisers on the New Economic Policy

August 12, 1972

It is now almost exactly a year since the New Economic Policy was launched on August 15, 1971. What has happened since then adds up to solid economic gains which are a tribute to the public spirit of the people, as well as tangible pocketbook progress for the people.

The actions of last August 15 were designed to intensify previous measures that had reduced the rate of inflation and had started economic resurgence. They included a freeze on wages and prices to help reduce the inflation further, tax reductions to speed up the expansion and get unemployment down, and steps in international finance and trade to lay the basis for increasing the competitiveness of the United States in the world economy.

The August 15 policy consisted of actions the Government would take. But, as I said in my speech that night, the key to success would be in the hands of the American people.

I asked for public cooperation on the ground of patriotism--for the sake of America's economic health. But I also asked for cooperation on the ground of intelligent self-interest. Only by acting together could we get off the inflationary treadmill which for years had been keeping all of us from enjoying the rising prosperity the American economy was capable of producing.

This report by the Council of Economic Advisers describes what has happened since the New Economic Policy was adopted. The performance has been impressive:

• The rate of increase in the cost of living, which had been cut by one-third before the freeze, has now been cut in half.

• There are 2.5 million more civilian jobs than there were one year ago.

• The unemployment rate has declined from about 6 percent to 5 1/2 percent.

• Our economy is growing at a rate of almost 9 percent a year, the highest since 1965.

• Workers' real weekly spendable earnings have risen 4 percent in the last year, three times the average rate from 1960 to 1968.

• We have led the world on the path to international financial and trade reform which will substantially help us to improve our international competitive position as well as help other countries strengthen their economies. I want to emphasize that the success of the New Economic Policy has been due to the cooperation of the American people.

This cooperation has taken many forms: • Voluntary compliance by workers, businesses, landlords, consumers and tenants with the price-wage freeze and then with Phase II has been remarkable.

• During the period when the Phase II program was being developed, leaders of business, labor, agriculture, and State and local governments were most helpful in consulting with the Federal officials involved. In the following months, many outstanding citizens have participated in running the program.

• Productivity--output per man-hour --rose 4.3 percent in the past year, the biggest year-to-year gain since early 1966. Such an increase of productivity is impossible without the positive mutual contributions of labor and management.

• The fraction of working time lost from strikes has been at an exceptionally low level.

The American people can congratulate themselves on their performance in the past year and are increasingly enjoying the tangible benefits of what they and their Government have done together.

We still have economic problems to solve, however, and again the key to success lies in the hands of the people. We must firmly establish a lower rate of inflation-both in fact and in the public expectations which help shape the economic future. While we have cut the rate of inflation in half the price of food remains a major concern. We have to get the unemployment rate down much further. We have to continue to improve U.S. competitiveness to strengthen our international economic position.

To accomplish all these things will require continued efforts by everyone-including the Government--to comply with the letter and the spirit of the pricewage control system and to raise productivity even higher.

The critical point at which the help and understanding of the American people is now needed is the Federal budget. If we allow Federal expenditures to soar again, to a point far exceeding the revenues even under conditions of full employment--as they did between 1965 and 1968--we will risk destroying the hard-won gains we have already made. The result would be big increases in the cost of living, or big new taxes--or the first followed by the second.

This Administration is determined to do its best to resist this course by keeping the budget under control, and I have urgently called upon the Congress for help.

But the outcome will depend most of all on the wishes of the American people: If the people insist on spending beyond the $250 billion ceiling I have urged, such spending will be done. But if the people join me in insisting that Federal spending be held down, to avoid reviving inflation now and paying higher taxes soon, the Government will act responsibly.

This critical situation poses a great test of our mature determination to manage our economic affairs soundly. I am confident that we will meet it, and that our national economy--which includes all of us--will continue to rise to new heights of prosperous greatness.

RICHARD NIXON

Note: The introduction is printed in the report entitled "The Economy at Mid-1972" (Government Printing Office, 109 pp.).

Richard Nixon, Introduction to a Report by the Council of Economic Advisers on the New Economic Policy Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/254709

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