Lyndon B. Johnson photo

Annual Message to the Congress: The Economic Report of the President

January 28, 1965

To the Congress of the United States:

I am pleased to report

--that the state of our economy is excellent;

--that the rising tide of our prosperity, drawing new strength from the 1964 tax cut, is about to enter its fifth consecutive year;

--that, with sound policy measures, we can look forward to uninterrupted and vigorous expansion in the year ahead.

PROGRESS TOWARD OUR ECONOMIC GOALS FULL EMPLOYMENT In the year just ended, we have made notable progress toward the Employment Act's central goal of "... useful employment opportunities, including self-employment, for those able, willing, and seeking to work, and . . maximum employment, production, and purchasing power."


--Additional jobs for 1 1/2 million persons have been created in the past year, bringing the total of new jobs since January 1961 to 4 1/2 million.

--Unemployment dropped from 5.7 percent in 1963 to 5.2 percent in 1964 and was down to 5.0 percent at year's end.


--Gross National Product (GNP) advanced strongly from $584 billion in 1963 to $622 billion in 1964.

--Industrial production rose 8 percent in the past twelve months.

Purchasing power:

--The average weekly wage in manufacturing stands at a record $106.55, a gain of $3.89 from a year ago and of $17.50 from early 1961.

--Average personal income after taxes has reached $2,288 a year--up 17 I/2 percent in four years.

--Corporate profits after taxes have now risen continuously for four straight years-from a rate of $19 1/2 billion early in 1961 to nearly $32 billion at the end of 1964.

But high levels of employment, production, and purchasing power cannot rest on a sound base if we are plagued by slow growth, inflation, or a lack of confidence in the dollar. Since 1946, therefore, we have come to recognize that the mandate of the Employment Act implies a series of objectives closely related to the goal of full employment:

--rapid growth,

--price stability, and

--equilibrium in our balance of payments.

RAPID GROWTH True prosperity means more than the full use of the productive powers available at any given time. It also means the rapid expansion of those powers. In the long run, it is only a growth of over-all productive capacity that can swell individual incomes and raise living standards. Thus, rapid economic growth is clearly an added goal of economic policy.

--Our gain of $132 billion in GNP since the first quarter of 1961 represents an average growth rate (in constant prices) of 5 percent a year.

--This contrasts with the average growth rate of 2 1/2 percent a year between 1953 and 1960.

Part of our faster gain in the last four years has narrowed the "gap" that had opened up between our actual output and our potential in the preceding years of slow expansion. But the growth of our potential is also speeding up. Estimated at 3 1/2 percent a year during most of the 1950's, it is estimated at 4 percent in the years ahead; and sound policies can and should raise it above that, even while moving our actual performance closer to our potential.

PRICE STABILITY I regard the goal of over-all price stability as fully implied in the language of the Employment Act of 1946.

We can be proud of our recent record on prices:

--Wholesale prices are essentially unchanged from four years ago, and from a year ago.

--Consumer prices have inched upward at an average rate of 1.2 percent a year since early 1961, and 1.2 percent in the past 12 months. (Much of this increase probably reflects our inability fully to measure improvements in the quality of consumer goods and services.)

BALANCE OF PAYMENTS EQUILIBRIUM The Employment Act requires that employment policy be "consistent" with "other essential considerations of national policy." Persistent balance of payments deficits in the 1950's reached an annual average of nearly $4 billion in 1958-60. Deficits of this size threatened to undermine confidence in the dollar abroad and limited our ability to pursue, simultaneously, our domestic and overseas objectives. As a result, restoring and maintaining equilibrium in the U.S. balance of payments has for some years been recognized as a vital goal of economic policy. During the past four years

--Our over-all balance of payments position has improved, and the outflow of our gold has been greatly reduced.

--Our commercial exports have risen more than 25 percent since 1960, bringing our trade surplus to a new postwar record.

--The annual dollar outflow arising from our aid and defense commitments has been cut $1 billion, without impairing programs.

--Our means of financing the deficit have been strengthened, reducing the gold outflow and helping to build confidence in the dollar.

CONSISTENCY OF OUR GOALS Thus, the record of our past four years has been one of simultaneous advance toward full employment, rapid growth, price stability, and international balance.

We have proved that with proper policies these goals are not mutually inconsistent. They can be mutually reinforcing.

THE ROLE OF ECONOMIC POLICY The unparalleled economic achievements of these past four years have been founded on the imagination, prudence, and skill of our businessmen, workers, investors, farmers, and consumers. In our basically private economy, gains can come in no other way.

But since 1960 a new factor has emerged to invigorate private efforts. The vital margin of difference has come from Government policies which have sustained a steady, but noninflationary, growth of markets.

I believe that 1964 will go down in our economic and political history as the "year of the tax cut."

It was not the first time that taxes were cut, of course, nor will it be the last time. But it was the first time our Nation cut taxes for the declared purpose of speeding the advance of the private economy toward "maximum employment, production, and purchasing power." And it was done in a period already prosperous by the standard tests of rising production and incomes. In short, the tax cut was an expression of faith in the American economy:

--It expressed confidence that our economy would translate higher after-tax incomes and stronger incentives into increased expenditures in our markets.

--It recognized the presence of untapped productive capacity. We cut taxes confident that the economy would respond to increased buying by producing more goods at stable prices rather than the same output at higher prices.

--It insisted on getting full performance from the American economy.

The promise of the tax cut for 1964 was fulfilled. Production, employment, and incomes jumped ahead. Unemployment was whittled down steadily.

Since 1960, the balance between budget expenditures and taxes has been boldly adjusted to the needs of economic growth. We have recognized as self-defeating the effort to balance our budget too quickly in an economy operating well below its potential. And we have recognized as fallacious the idea that economic stimulation can come only from a rapid expansion of Federal spending.

Monetary policy has supported fiscal measures. The supply of credit has been wisely tailored to the legitimate credit needs of a noninflationary expansion, while care has been taken to avoid the leakage of short-term funds in response to higher interest rates abroad.

Fiscal and monetary policies to build our prosperity have been buttressed by measures

--to improve the education, skills, and mobility of our labor force;

--to stimulate investment in new and modern plants and machinery;

--to expand exports;

--to assist in rebuilding the economic base of communities and areas that have lagged behind;

--to strengthen our farm economy and support farm income;

--to conserve and develop our natural resources;

--to keep a sound flow of credit moving to home-buyers and small businesses;

--to redevelop decaying urban areas;

--to strengthen our transportation network; and

--to offer business and labor a guide for sound and noninflationary price and wage decisions.

Public policies to build a sound prosperity have found their response in equally constructive private efforts.

--Our businessmen have controlled their costs, increased their efficiency, and developed new markets at home and abroad.

--They have kept their inventories under tight control and have prudently geared their plant expansion to rising markets in an expanding economy.

--Consumers have used rising incomes and tax savings to lift their standards of living, while adding to their wealth to assure their future standards of living.

--Workers have realized that wage gains which justify employers' raising prices vanish when they take their pay envelopes into the stores--and cost them much when they draw on their savings.

--Workers and managers have cooperated to facilitate the adoption of new technology, while solving the human problems it sometimes creates.

As a result of public and private policies, we have come to our present state of prosperity without pressures or imbalances that would foretell an early end to our expansion. Instead, we look forward to another year of sustained and healthy economic growth.

THE UNFINISHED TASKS Our prosperity is widespread, but it is not complete. Our growth has been steady, but its permanence is not assured. Our achievements are great, but our tasks are unfinished.

1. Four years of steadily expanding job opportunities have not brought us to full employment. Some 3.7 million of our citizens want work but are unable to find it. Up to 1 million more--"the hidden unemployed"--would enter the labor force if the unemployment rate could be brought down just one percentage point.

In the next year, 1.3 million more potential workers will be added to our labor force, including a net increase of 1/2 million below the age of 20.

The more of these 6 million potential workers who find jobs in 1965

--the faster our total output will grow;

--the greater will be the markets for the products of our factories and farms;

--the larger will be our Federal revenues;

--the greater will be the number of our citizens who know they are contributing to our society, not subsisting on the contributions of others;

--the smaller will be the number who know the pangs of insecurity, deprivation, even of hunger;

--the larger will be the number of teenagers who feel that society has a useful purpose for them.

The promise in the Employment Act of job opportunities for all those able and wanting to work has not yet been fulfilled. We cannot rest until it is.

2. Four years of vigorous efforts have not yet brought our external payments into balance. We need to complete that task--and we will.

The stability of the American dollar is central not only to progress at home but to all our objectives abroad. There can be no question of our capacity and determination to maintain the gold value of the dollar at $35 an ounce. The full resources of this Nation are pledged to that end.

Progress in key sectors of our international payments has been good, but not enough. Gains in trade and savings in Government overseas payments have been offset in large measure by larger capital outflows. As a result our deficit remains far too large. We must and will reduce and eliminate it.

In the process of restoring external balance we must continue--in concert with other nations of the free world--to build an international economic order--based on maximum freedom of trade and payments,

--in which imbalances in payments, whether surpluses or deficits, are soundly financed while being effectively eliminated,

--in which no major currency can be undermined by speculative runs, and

--in which the poorer nations are helped-through investment, trade, and aid--to raise progressively their living standards toward those of the developed world.

3. Ceaseless change is the hallmark of a progressive and dynamic economy. No planned economy can have the flexibility and adaptability that flow from the voluntary response of workers, consumers, and managements to the shifting financial incentives provided by free markets.

In those activities entrusted to governments-as in those where private profit provides the spur--the search for efficiency and economy must never cease.

The American economy is the most efficient and flexible in the world. But the task of improving its efficiency and flexibility is never done.

4. American prosperity is widely shared. But too many are still precluded from its benefits by discrimination; by handicaps of illness, disability, old-age, or family circumstance; by unemployment or low productivity; by lack of mobility or bargaining power; by failure to receive the education and training from which they could benefit.

The war against poverty has begun; its prosecution is one of our most urgent tasks in the years ahead.

5. Our goals for individuals and our Nation extend far beyond mere affluence. The quality of American life remains a constant concern.

The task of economic policy is to create a prosperous America. The unfinished task of prosperous Americans is to build a Great Society.

Our accomplishments have been many; these tasks remain unfinished:

--to achieve full employment without inflation;

--to restore external equilibrium and defend the dollar;

--to enhance the efficiency and flexibility of our private and .public economies;

--to widen the benefits of prosperity;

--to improve the quality of American life.

ECONOMIC PROSPECTS FOR 1965 Approval of the fiscal program I have recommended means that GNP in 1965 should expand over 1964's record level and reach--as the midpoint of a $10 billion range--$660 billion for the year.

Carried forward by the momentum of last year's gains and fueled by the continuing stimulus of profits enlarged through tax reduction, private business investment in plant and equipment should grow nearly as much in 1965 as it did in 1964.

Current rapid gains in sales, and slim stocks in 1964, should produce a higher rate of production for inventory in 1965.

Residential construction will remain high. State and local governments will continue to enlarge their buying.

Consumers' confidence is strong. They will respond to rising earnings, higher social security benefits, and a cut in excise taxes by lifting their purchases, thereby providing a market for a full two-thirds of our expected over-all gain in production.

FEDERAL FISCAL POLICY Private demand will be strong in 1965. It will be further sustained by Federal fiscal measures.

The 1966 Budget Message outlines my fiscal philosophy. We have four priorities:

--to strengthen our national defense;

--to meet our pressing human needs;

--to maximize the efficiency of Government operations;

--to sustain the advance of our Nation's economy.

In these priorities lies the key to our whole strategy of attack on waste:

--the waste of lives and property and progress which is the cost of war;

--the waste of human potential and self-respect which is the cost of poverty and lack of opportunity;

--the waste of excessive Government personnel, obsolete installations, and outmoded public services which is the cost of inefficient Government;

--the waste of men and facilities and resources which is the cost of economic stagnation.

Purposeful expenditures, stimulative tax reduction, and economy in Government operations are the three weapons which, if used effectively, can relieve our society of the costs and consequences of waste.

Carrying out these principles, I have submitted a budget which will once again contribute expansionary force rather than restrictive pressure on our economy.

As measured by their effects on incomes and production, Federal expenditures, grants, and transfer payments in calendar 1965 will exceed by $5 billion their amount in 1964. The largest single part of this increase will arise from the 7 percent increase in Social Security payments I have proposed.

The reduction or elimination of many excise taxes (when fully effective, $1.75 billion a year)--partially offset by appropriate new or increased user charges--will accomplish a net tax reduction of nearly $700 million within calendar year 1965. In addition, another $x billion reduction in corporate income tax liabilities becomes effective this year. So does a further $3 billion reduction in personal tax liabilities (although not in withholding rates).

Should unfavorable developments in the private economy during 1965 unexpectedly make this budgetary stimulus inadequate to maintain a strong pace of expansion, I shall be prepared to consider additional fiscal action.

PROGRESS TOWARD FULL EMPLOYMENT A GNP of around $660 billion, with expansion throughout the year, will give us our fifth straight year of substantial economic gains--a record without peacetime precedent.

The productive powers of our dynamic economy are now expanding so rapidly that a gain of $38 billion will do little more than keep up with the expansion of our capacity, and will make only modest inroads into the still too heavy unemployment of our human and physical resources. But unemployment in 1965 should average less than the 5.2 percent of 1964.

The road to maximum employment, production, and purchasing power will not be easily or quickly traveled. And it has no final destination. The challenge of maintaining full employment once reached will be as urgent and as difficult as reaching it.

COMBATING RECESSIONS A time of prosperity with no recession in sight is the time to plan our defenses against future dips in business activity.

I do not believe recessions are inevitable. Up to now, every past expansion has ended in recession or depression--usually within three years from its start. But the vulnerability of an expansion cannot be determined by the calendar. Imbalance--not old age-is the threat to sustained advance.

In principle, public measures can head off recessions before they start. Unforeseen events and mistakes of public or private policy will nonetheless occur. Recessions may be upon us before we recognize their warning signs.

We can head them off, or greatly moderate their length and force--if we are able to act promptly.

The stimulating force of tax cuts is now generally recognized.

The Congress could reinforce confidence that jobs and markets will be sustained by insuring that its procedures will permit rapid action on temporary income tax cuts if recession threatens.

Recessions usually arise from a reduction in the intensity of private demand for goods and services. At such a time, it may be appropriate to employ idle or potentially idle resources in sound programs of public expenditure.

The programs which should be considered for expansion at such times would be those:

--that meet important public needs;

--that are capable of quick acceleration-not just in the assignment of funds but in the hiring of workers and the production of goods;

--that in any event would have been increased in the next regular budget, or that are capable of quick and efficient termination when the need has passed.

MONETARY POLICY IN 1965 As in 1964, an expansionary monetary policy will be tempered by the urgency of our balance of payments problem. But barring domestic or international emergency, our monetary and debt-management policies can serve--as they have since 1960--to accommodate the credit needs of a noninflationary expansion.

Long-term interest rates, in particular, will continue to be held down by the vast flow of savings into private financial institutions. Long-term borrowers now reasonably plan on the essential stability of long-term interest rates in 1965.

Monetary policy must be free of arbitrary restriction. It must be prepared to move quickly

--if excessive demand should threaten inflation,

--if an outflow of liquid funds should unexpectedly worsen our balance of payments.

We expect neither of these in 1965. Rather, we expect a continuation of sound and healthy economic expansion.

The Federal Reserve system must be free to accommodate that expansion--in 1965 and in the years beyond 1965. Such an expansion needs to be supported by further orderly growth in money and credit. But this growth, as it is reflected in Federal Reserve note and deposit liabilities, could easily absorb--within two years or less, and without the outflow of a single ounce of gold--the present operating margin over the 25 percent "gold cover" required by existing law.

Clearly, we should place beyond any doubt the ability of the Federal Reserve to meet its responsibility for providing an adequate but not excessive volume of bank reserves.

Clearly, we should place beyond any doubt our ability to use our gold to make good our pledge to maintain the gold value of the dollar at $35 an ounce with every resource at our command.

I am requesting the Congress, therefore, to eliminate the arbitrary requirement that the Federal Reserve Banks maintain a gold certificate reserve against their deposit liabilities.

The desirability of prompt action does not arise from any sudden emergency. If required at any time in defense of the dollar, gold could and would be released from the present requirement under the provisions of existing law.

But we should not permit a provision of law framed for the different circumstances of an earlier day to raise any questions about our ability to carry out effective and responsible monetary and credit policies

--for domestic prosperity, with stable prices, and

--for defense of the dollar abroad.

MAINTAINING WAGE-PRICE STABILITY The remarkable price stability of 1959-63 persisted throughout 1964. There is good reason to believe that it will continue in 1965.

Yet watchful caution must govern public and private policies in 1965.

Though the margin remains substantial, our economy is now closer to full utilization than at any time since 1957. Despite the general moderation of labor settlements and the general restraint by pricemakers in industries that have price discretion, there have been disturbing exceptions. Moreover, temporary and accidental factors--such as those that affected some nonferrous metals in 1964--could spark price increases in another sector of our economy in the year ahead.

Individual prices will have to rise, where productivity gains are small or materials costs go up. But these should be balanced by price cuts elsewhere.

We can no more afford inflation in 1965 than we could in 1964. Our balance of payments problem is not solved. We have only recently begun to regain the competitive edge in international markets that was impaired by the inflation of the mid-1950's.

Federal budgetary and monetary policies must not permit a generalized excess of demand over supply to pull up prices. But, equally, private price and wage decisions must not push up costs and prices.

I count on the sense of public responsibility of our labor leaders and our industrial leaden to do their full part to protect and extend our price stability.

Reasonable price and wage guideposts are again spelled out in the accompanying Report of the Council of Economic Advisers. I commend them to the attention of the American public and of leaden of labor and industry.

With the help of the Council and of other agencies of Government, I intend

--to maintain a close watch on wage and price developments;

--to draw public attention to those private actions which threaten the public interest;

--to ask, as I have recently done in the case of steel prices, for special, detailed analysis of price or wage increases in key sectors of the economy; and

--to oppose legislative enactments that threaten to raise costs and prices and to support those that will stabilize or reduce costs and prices.


RESTORING BALANCE IN OUR EXTERNAL PAYMENTS Continued cost and price stability is fundamental to correction of our balance of payments deficit--it is the foundation on which we must build our entire effort to achieve external equilibrium. In addition, we must continue and intensify more specific attacks on the problem.

--We are continuously reviewing our aid and defense programs to achieve the maximum savings in dollar expenditures abroad. Our aid programs must remain closely tied to exports of U.S. goods and services, until the balance of payments problem has been eliminated.

--We must continue and strengthen measures to promote U.S. exports.

--We will be alert to restrain any persistent outflow of short-term private funds in response to relatively high short-term interest rates in foreign countries.

--To increase our ability to attract foreign investment in U.S. securities, legislation will be proposed to improve the tax treatment of such investments.

More broadly, we need to reassess the adequacy of existing programs to deal with the balance of payments problem. The results of this reassessment will be set forth in a separate message to the Congress.

BUILDING A STRONGER WORLD ORDER Through expanded trade: In the Kennedy Round of trade negotiations now underway at Geneva, we are working intensively for a broad liberalization of world trade in both industrial and agricultural products.

A successful outcome can be of crucial benefit not only to the industrialized countries but also to the developing countries of the world.

Through improved international monetary arrangements: We take pride in our leadership in the building of the postwar system of international monetary cooperation. We find reassurance in the wholehearted resolve of the industrialized countries of the free world to avoid repeating the costly mistakes of the 1920's and 1930's. The strength of international monetary cooperation was demonstrated dramatically in 1964 in repelling speculative attacks on the Italian lira and the British pound.

We will continue to pursue orderly growth at home and abroad

--on the basis of stable convertible currencies and the fixed $35 price for gold;

--through a wide network of bilateral and multilateral credit arrangements; and

--through frequent consultation between countries.

But we still have more to learn about --how best to share the burden of making necessary mutual adjustments when countries run persistent deficits or surpluses in their balances of payments, and

--how best to meet the need of ensuring orderly growth in world liquidity to finance expanding world trade.

We will continue to seek agreement on these problems with other countries; we are confident that effective solutions will be found. We look toward early agreement on an increase in the resources of the International Monetary Fund, which will further strengthen the international monetary system.

Through helping to raise incomes in less developed countries: U.S. foreign assistance programs further three basic American aims. By helping to advance the economic growth of the less developed nations, they

--create the kind of world in which peace and freedom are most likely to flourish;

--bring closer a world economic order in which all nations will be strong partners;

--simultaneously, give a major stimulus to U.S. exports both in the present through direct financing of U.S. goods and services and for the future by developing the recipient's ability to buy and his preference for American products.

MANPOWER POLICIES FOR A FLEXIBLE ECONOMY Fiscal and monetary measures have the primary responsibility for furnishing "employment opportunities for those able, willing, and seeking to work."

But the creation of jobs is not enough. lob opportunities and men must be matched. Workers must have the requisite skills--and the opportunity to gain new skills if advancing technology finds less use for their old ones.

To a substantial degree, strong demand for labor will bring workers and jobs together. But sole reliance on strong demand would place price stability under an unnecessary threat. And the time needed for such adjustments would place unnecessary burdens upon displaced employees and new entrants to the labor market.

To reduce human costs, raise productivity, and make possible full employment without inflation, this Administration is developing an active manpower policy.

U.S. EMPLOYMENT SERVICE An efficient labor market brings together employers and potential employees--matching workers and jobs over time, space, and occupations. Most man-job matches occur unassisted, but a strong Federal-State employment service can make the difference between an effective and an inefficient labor market.

The efficiency of the U.S. Employment Service has improved in recent years, but further strengthening is required for truly efficient labor markets. My budget provides for that strengthening.

MANPOWER TRAINING The Manpower Development and Training Act was passed in 1962 and broadened in 1963. Its purpose is to supply skills to those who, whether for lack of wisdom or lack of opportunity, failed to acquire them earlier. It aims to make possible retraining of those who would otherwise bear the burdens of society's technological progress.

We intend to improve and expand our training programs in 1965. We will give special attention to basic training and basic education/or those at the bottom of the ladder of skills.

PRIVATE PENSION AND WELFARE FUNDS Spectacular growth has occurred in postwar years in private pension and welfare plans. They provide a vital supplement to public programs to assist older workers, disabled workers, and workers who lose their jobs. But potential problems have become evident.

Failure to give the worker a right to his pension if he should change his employment hampers labor mobility. And in some instances, absence of full funding has imperiled the retirement incomes of the affected workers.

I have asked several groups to study these and other difficult problems. I am now releasing--for consideration by unions, employers, the public, and the Congress--the Report of my Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs.

MAINTAINING INCOMES OF THE DISADVANTAGED Not every person can share fully in the fruits of our progress through his own daily productive effort. Large numbers of our retired and handicapped cannot work. Many workers still suffer unemployment. Even in prosperous times, some receive wages below our standards. And the poverty of one-fifth of our families traps too many of our children in lives without opportunity or aspiration.

I am proposing new programs and extensions of old ones to meet more effectively our obligation to the weak and disadvantaged.

SOCIAL SECURITY Cash benefits must be increased to provide adequate support for the aged. I urge a 7 percent rise in Social Security benefits this year, retroactive to January 1, financed by an increase next January in the covered wage base and in the combined employer and employee contribution rates. Increases in public assistance payments to the needy aged, blind and disabled, and to needy children, should be enacted. We must continue to maintain the financial soundness of the social security system, at the same time taking care that its financing avoids the "fiscal drag" which could endanger our .prosperity.

HOSPITAL INSURANCE FOR THE ELDERLY We can and must assure improved health services for the aged whose health needs are greatest and whose financial resources most meager. A hospital insurance program for the elderly, financed by contributions through social security, will provide protection against the costs of hospital and posthospital extended care, home health visits, and outpatient diagnostic services. I urge the Congress to act promptly on this program.

UNEMPLOYMENT INSURANCE Improved protection against the risks of unemployment is long overdue. A comprehensive program requires that

--coverage be extended to additional workers under our Federal-State unemployment insurance program;

--benefits be kept in step with wages; --the duration of benefits be extended beyond the 26 weeks now authorized in most States for workers with a firm and substantial labor force attachment.

l shall recommend such a program.

FAIR LABOR STANDARDS A large number of workers still lack the protection of Federal minimum standards.

I shall recommend coverage for an additional 2 million workers under the Fair Labor Standards Act.

POVERTY America's efforts to eradicate poverty are quickly taking shape under the Office of Economic Opportunity. Programs of community action, education, training, and work experience will strike at the roots of poverty, especially among our youth. I urge a doubling of appropriations to intensify these efforts.

IMPROVING URBAN LIFE Our cities are the homes of more than two-thirds of the American people.

--They must be communities where men can find security, significance, and fulfillment.

--They must be centers of economic strength and commercial vitality.

--They must be seats of learning, sources of culture, and centers of scientific achievement.

--They must challenge and release the full productive and creative capacities of the people.

Our first task is to recognize that the city and its suburbs--often, indeed, several cities and their suburbs--constitute a single metropolitan area.

The Federal Government has neither wish nor power to abolish the legal boundaries that divide an urban area. But the Federal Government helps cities because many aspects of urban life pose problems of national as well as local concern. We can increasingly require--as a condition for Federal help--that the separate units work and plan together to assure that Federal aid and federally financed facilities will be used effectively in improving urban life.

We must increasingly help our cities to

--develop unified metropolitan transportation systems;

--supply adequate water and sewage service;

--provide community facilities and neighborhood centers;

--build adequate housing for low- and middle-income families;

--promote more efficient land use;

--set aside open spaces and develop new suburbs;

--replace or rehabilitate slum areas; and

--improve housing codes and code enforcement.

We need a new Department of Housing and Urban Development to strengthen our ability to cope with these problems.

I shall shortly send to the Congress a message containing my recommendations.


NATURAL RESOURCE DEVELOPMENT America owes her greatness partly to the large public and private investments made to develop her abundant natural resources. Rapid growth and urbanization require intensified efforts to solve old problems and imaginative approaches to new challenges.

Especially requiring study and action are

--The protection of our environment. We need to strengthen our attack on air, water, and soil pollution.

--Water resource programs. We must improve the efficiency, coordination, and comprehensiveness of our major water resource development programs. More realistic charges and user fees will improve equity and strengthen private incentives for efficient use.

--Research programs. We must find new and more efficient ways of utilizing available resources. I have recommended increased research efforts in several areas, including the desalting of sea water.

--Recreational resources. Urbanization, higher incomes, and expanded leisure time pose new demands for outdoor recreation. New and improved facilities are needed, particularly near metropolitan areas.

STRENGTHENING THE ECONOMIC BASE OF COMMUNITIES In 1961, the Congress recognized the special needs of distressed areas by passing the Area Redevelopment Act. Since then, hundreds of urban and rural communities have been strengthened by grants, loans, technical assistance, and training programs to help to build or restore their economic base. This program has helped distressed areas to benefit more fully from sustained prosperity.

Redirection of this program can benefit from the experience of the last four years. Future assistance should be sufficient to make a significant impact on the economic growth of the communities assisted. Integrated development plans must be devised for larger economic areas with high promise of future viability, and communities must be helped to mobilize public and private leadership in an attack on local blight and depression.

I shall propose measures to achieve these goals, through an extension and strengthening of the Area Redevelopment Act.

I also urge the Congress to enact the special program to assist in redeveloping the Appalachian region.

CONSUMER INFORMATION Informed consumer choice among increasingly varied and complex products requires frank, honest information concerning quantity, quality, and prices. Truth-in-packaging will help to protect consumers against product misrepresentation. Truth-in-lending will help consumers more easily to compare the costs of alternative credit sources.

TRANSPORTATION The technological revolution in transportation, and large public and private investments in our highways, railroads, airways, and waterways, have greatly altered the nature of our transportation system. Our national transportation policy should be revised to reflect these changes, particularly by placing greater emphasis on competition and private initiative in interstate transportation. Fair and adequate user fees for our inland waterways, our Federal airways, and our Federal-aid highways will improve equity and efficiency in the use of these public resources.

As part of a well-rounded system of moving goods and people, there is urgent need and opportunity for high-speed, comfortable, and economical passenger transportation on densely traveled routes, such as in the Northeast corridor.

I am recommending an enlarged program of research and demonstration projects to determine the best and cheapest way to racer this need.


--has proposed a State Technical Services Program to enable States to join with universities and industry to create new jobs through wider application of advanced technology;

--is establishing a coordinated system for scientific and technical data, to reduce unnecessary duplication of research and lower the costs of obtaining scientific data.

My budget contains funds for these desirable programs.

AGRICULTURE Americans owe much to the efficiency of our farmers. Their independent spirit and productive genius are the envy of the world. We must continue to assure them the opportunity to earn a fair reward for their efforts.

I will transmit to the Congress recommendations for improving the effectiveness of our expenditures on price and income supports.

Many small farmers cannot expect to earn good incomes from farming. But they-along with other rural Americans--will have an opportunity to share in the fruits of our society through faster economic growth, better education and training opportunities, and improved health and community facilities. We must extend the benefits of American prosperity to all our people, including those in rural America.

EDUCATION AND HEALTH In my message on education I proposed a program to insure an opportunity to every American child to develop to the full his mind and his skills.

In my message on health I proposed a massive new attack on diseases which afflict mankind.

We value education and health for their direct benefits to human understanding and happiness. But they also yield major economic benefits.

Investments in human resources are among our most profitable investments. Such investments raise individual productivity and incomes, with benefits to our whole society. They raise our rate of economic growth, increase our economy's efficiency and flexibility, and form the cornerstone of our attack on poverty.

I believe that the Congress will find economic as well as human reasons to support my proposals on education and health.

CONCLUSION In our economic affairs, as in every other aspect of our lives, ceaseless change is the one constant.

Revolutionary changes in technology, in forms of economic organization, in commercial relations with our neighbors, in the structure and education of our labor force converge in our markets. Free choices in free markets -- as always -- accommodate these tides of change.

But the adjustments are sometimes slow or imperfect. And our standards for the performance of our economy are continually on the rise. No longer will we tolerate widespread involuntary idleness, unnecessary human hardship and misery, the impoverishment of whole areas, the spoiling of our natural heritage, the human and physical ugliness of our cities, the ravages of the business cycle, or the arbitrary redistribution of purchasing power through inflation.

But as our standards for the performance of our economy have risen, so has our ability to cope with our economic problems.

Economic policy has begun to liberate itself from the preconceptions of an earlier day, and from the bitterness of class or partisan division that becloud rational discussion and hamper rational action.

Our tools of economic policy are much better tools than existed a generation ago. We are able to proceed with much greater confidence and flexibility in seeking effective answers to the changing problems of our changing economy.

The accomplishments of the past four years are a measure of the constructive response that can be expected from workers, consumers, investors, managers, farmers, and merchants to effective public policies that strive to define and achieve the national interest in

--full employment with stable prices;

--rapid economic growth;

--balance in our external relationships;

--maximum efficiency in our public and private economies.

These perennial challenges to economic policy are not fully mastered; but we are well on our way to their solution.

As increasingly we do master them, economic policy can more than ever become the servant of our quest to make American society not only ,prosperous but progressive, not only affluent but humane, offering not only higher incomes but wider opportunities, its people enjoying not only full employment but fuller lives.


January 28, 1965

Lyndon B. Johnson, Annual Message to the Congress: The Economic Report of the President Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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