"An Economic Position Paper for Now and Tomorrow"

Current Economic Realities

Under two Republican Administrations we have been faced with the twin evils of intolerably high unemployment and double-digit inflation. We have experienced the worst recession since the 1930's, and the second recession since 1968. Federal deficits reached unheard of peacetime levels.

For eight years we have seen strict wage and price controls suddenly imposed and just as suddenly lifted. We have witnessed two devaluations of our currency. We have had to live with the consequences of the disastrous 1972 grain giveaway to the Soviet Union. We have watched our petroleum prices increase four and five fold. We have seen overly restrictive monetary policies and high interest rates compound our recession and greatly restrict our construction and homebuilding industry.

While inflation has declined from its previous levels, it still remains unacceptably high. It must not be ignored, for it is a critical problem facing the American people.

The major economic problem, however, is unacceptably high unemployment.

The average unemployment rate in 1975 was 8.5 percent. In no other postwar year has it averaged as much as 7 percent. Today, unemployment nationally is 7.5 percent—above the annual unemployment rate of any year since the Great Depression, 60 percent higher than 1972 and over 70 percent higher than in 1973. And yet this figure is itself a gross understatement of the true unemployment problem affecting our country. According to the United States Department of Labor, central city unemployment for 1975 was 9.6 percent. In some major cities unemployment has recently run as high as 17 percent. In 1975, every fourth black worker was unemployed and the majority of them were ineligible for unemployment compensation. Teenage black unemployment in some areas approaches the staggering figure of 40 percent. Unemployment among construction workers is over 20 percent.

Even these figures are deceptive for they do not include the hundreds of thousands of people who have been left out of the labor market due to their frustrating inability to find a job.

These are not simply figures. They represent an incalculable cost both to the unemployed and the nation. They represent the crushed dreams of millions of Americans ready and willing to work. All Americans should be free to have a decent job.

Unemployment not only affects the unemployed, it affects all Americans.

It has been estimated by the Joint Economic Committee of Congress that each one percent of excess unemployment adds at least $4 to $5 billion in direct costs for unemployment compensation, food stamps and welfare.

The federal government is currently spending between $17 and $20 billion for unemployment compensation and an additional $2 to $3 billion on food stamps due to unemployment. The present rate of unemployment compensation due to the recession is now more than four times the cost of two years ago.

High levels of unemployment mean increased crime and violence, lost output, a lower level of productivity, and less investment in new capital.

Goals for the Present and Future

1. We must develop a sensible, steady, fair, humane, well-coordinated national economic policy.

My economic policy will be based on the true complexities of the present economic picture and the time required for any government policy to work its will. It will avoid the shocks and surprises the on-again off-again programs and rapid policy changes which have characterized the last 8 years. It must be geared to alleviating inequities in our economic system and avoiding the harsh and arbitrary actions which paralyze those in our society least able to help themselves.

2. We must give highest priority to achieving a steady reduction of unemployment and achieving full employment—a job for everyone who wishes one—as rapidly as possible, while reducing inflation,

3. We must insure a better coordination between fiscal and monetary policy and insure a closer working relationship between the Executive Branch and the Federal Reserve Board.

4. Given the present state of the economy, we must pursue an expansionary fiscal and monetary program in the near future, with some budget deficits if necessary, to reduce unemployment more rapidly. But with a progressively managed economy we can attain a balanced budget within the context of' full employment by 1979, prior to the end of the first term of my administration. A balanced budget can be achieved without reducing social expenditures, through the increased revenues which will be realized by higher incomes in a fully employed economy. Under my administration, economic growth will generate additional revenues, avoiding the need for recession-related expenditures, and insuring both budget stability and an adequate level of public spending. I favor balanced budgets over the business cycle.

5. We need better economic coordination and planning through an expanded role for the Council of Economic Advisors, to aid government, business, and industry in making intelligent decisions.

A National Economic Policy

1. Rapid Reduction in Unemployment

I am committed to a dramatic reduction in unemployment, without reviving double-digit inflation, through the following means:

(a) We must have an expansionary fiscal and monetary policy for the coming fiscal year to stimulate demand and production. This should not mean spending simply for the sake of spending without specific aims and goals, but policy aimed at curbing both cyclical and structural unemployment, creating useful jobs, and solving national needs.

Such an expansionary policy can reduce unemployment without reigniting inflation, because our economy is presently performing so far under capacity.

(b) Specific stimulation should be given to private industry to hire the unemployed through:

—an increased commitment by the federal government to fund the cost of on-the-job training by business;

—encouragement by the federal government to employers to retain workers during cyclical downturns including reforming the unemployment compensation tax paid by employers;

—public programs to train people for work in private sector jobs;

—incentives specifically geared to encourage employment, including incentives to employers who employ young persons and persons with lengthy records of unemployment, and to those employers who provide flexible hours of employment and flexible jobs, to aid access by women to the market place.

(c) To supplement our effort to have private industry play a greater role, the federal government has an obligation to provide funds for useful and productive public employment of those whom private business cannot or will not hire. Therefore we should:

—create meaningful public jobs in the cities and neighborhoods of the unemployed adjusted to solving our national needs in construction, repair, maintenance, and rehabilitation of facilities such as railroad roadbeds, housing, and the environment;

—improve manpower training and vocational education programs to increase the employability of the hard-core unemployed;

—provide 800,000 summer youth jobs;

—pass an accelerated public works program targeted to areas of specific national needs;

—double the CETA (Comprehensive Educational Training Act) program from 300,000 to 600,000 jobs, and provide counter-cyclical aid to cities with high unemployment;

—develop more efficient employment services to provide better job counseling and to match openings to individuals, and consider establishment of special Youth Employment Services especially geared to finding jobs for our young people.

2. Curbing Inflation

There are far more humane and economically sound solutions to curbing inflation than enforced recession, unemployment, monetary restrictions and high interest rates. Much of the inflation we have experienced was not caused by excessive demand but rather by dollar devaluations, external factors such as the increasing oil prices, and by worldwide increases in food and basic material prices. Furthermore, high interest costs, and the final dismantling of the controls program in 1974 contributed to high inflation rates.

A constant effort to battle inflation must accompany our drive for full employment. This requires measures to:

—increase the productive capabilities of our economy, with increased attention to the supply side of our economy, now virtually ignored;

—insure a steady flow of jobs and output;

—increase productivity so that growth does not become overly inflationary;

—insure a better relationship between the availability of goods and the demand for them. In the agricultural area, the federal government should assume the primary responsibility for establishing reserves of key foodstuffs in the United States;

—reform those governmental regulations, such as the rule prohibiting a truck from carrying goods on its return haul, which unnecessarily add to prices;

—strictly enforce anti-trust and consumer protection legislation and increase free-market competition;

—adopt a monetary policy which encourages lower interest rates and the availability of investment capital at reasonable costs;

—effectively monitor excessive price and wage increases in specific sectors of the economy.

While I oppose across-the-board permanent wage and price controls, I favor standby controls which the President can apply selectively. I do not presently see the need for the use of such standby authority.

3. Better Coordination Between Fiscal and Monetary Policy

Fiscal policy covers generally the taxing and spending decisions of the federal government. Fiscal policy formulation is centered in the federal government in the Congress, the Congressional Budget Office, the Office of Management and Budget, the Department of the Treasury, and the Presidency. Monetary policy on the other hand, concerns decisions having to do with money supply, interest rates, and credit market conditions, with policy formulation centered in the Federal Reserve System, and to a lesser extent, the Federal Home Loan Bank Board, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the Congress.

We cannot expect to achieve balanced growth through stable, sensible, and fair economic policies if fiscal and monetary policy are not better coordinated.

I propose the following steps:

—While the Federal Reserve Board should maintain its independence from the Executive Branch, it is important that throughout a President's term he have a Chairman of the Federal Reserve whose economic views are compatible with his own. Currently the Chairman is appointed for a four year term but not necessarily coterminous with the President's term. To insure greater compatibility between the President and the Federal Reserve Chairman, I propose that, subject to Senate confirmation, the President be given the power to appoint his own Chairman of the Federal Reserve who would serve a term coterminous with the President's.

—To insure better planning both by government and private industry, the Federal Reserve Board through its Open Market Committee should be held responsible for stating its objectives more clearly and publicly.

—The Federal Reserve Board should be required to submit to Congress and the public a credit market report on past monetary conditions, together with a short term and a year's outlook. This report, included as part of the Economic Report of the President to Congress, should be a definitive annual statement about monetary affairs. It should be the joint responsibility of the Secretary of the Treasury, the Director of the Office of Management and Budget, and the Chairman of the Federal Reserve Board to show in their consolidated report that their policies are mutually consistent and, if not, to demonstrate why they are not consistent.

4. More Effective Budgeting

The budget of . the federal government should serve as an instrument of both economic and general governmental policy. It is a statement of the influences of governmental expenditures on the allocation of resources, an instrument for carrying out economic stabilization policy, and a demonstration of our nation's priorities. It should serve as a guide to and a means of encouraging efficient and economical functioning of government.

For the current fiscal year, an expansionary fiscal and monetary policy is necessary. Social needs and the need for economic stabilization may require from time to time unbalancing of the budget. But, we should strive toward budget balance, within an environment of full employment, over the long term. The surplus years should balance the deficits. I therefore call for balanced budgets over the business cycle. This can be achieved by 1979. At the present time, there is a clear need for stimulus in order to return the economy to full employment.

A vigorous employment policy will enlarge the revenue base and will likewise reduce recession-related expenditures and will therefore do much to reduce the present deficit. My commitment is to achieve and maintain a high level of real growth in the economy, which will permit us to have a balanced budget without reductions in important social programs and within the context of full employment.

Budget planning within the federal government is presently on a yearly basis. This does not allow sufficient long-range planning. Therefore, we should budget on a three year cycle, rolling forward three years at a time when the budget is prepared each year. The first year ahead in a three year cycle should be the usual budget, the next two would be only first approximations, in an initial attempt to smooth out the budgeting process. The budget for the two latter years will normally be revised in the next year when a new third year is added for an initial approximation. The long range budgeting practice will roll forward from year to year.

The three year rolling budget technique will permit businessmen and public officials to do a much better job in laying out their own plans, relying less on the need for more elaborate proposals of comprehensive planning. Moreover, as we did while I was Governor of Georgia, we should predict the costs of programs over a long period of time so that proper long-term budgeting can be done. Also, we should attempt to implement new approaches to government budgeting, such as zero-base budgeting, which insure that there is quality control over government programs and that these programs accomplish their intended end.

5. Better Government Planning and Management

I am a firm advocate of the private enterprise system. I am a businessman myself. I oppose the type of rigid, bureaucratic centralized planning characteristics of communist countries.

But better general economic planning by government is essential to insure a stable, sensible, fair, humane economic policy, without the roller-coaster dips and curves we have faced in the last eight years. Government must plan ahead just like any business. Planning is widely practiced in the private sector of the American economy.

I favor coordinated government planning to attack problems of structural unemployment, inflation, environmental deterioration, exaggeration of economic inequalities, natural resource limitations, and obstructions to the operation of the free market system.

I believe that this type of planning can be carried out without the creation of a new bureaucracy, but rather through well defined extensions of existing bodies and techniques. I propose that the role of the present Council of Economic Advisers, established under the Full Employment Act of 1946, be expanded to include this type of coordinated planning and to deal with long-range problems of individual sectors fitted into a overall economic plan for the economy as a whole, as well as to deal with considerations of supply, distribution, and performance in individual industries.

Many of the economic shocks of the past eight years have come on the supply side of the economy. It is imperative that we study ways to anticipate problems rather than await their arrival and once again react with ill-conceived solutions in a crisis environment. Such detailed studies will be an important new task for the Council of Economic Advisers.

We have no discernible economic goals. Goals must be established and clearly enunciated, so that our programs can be developed within a planned, orderly context.

The techniques I have outlined can and will be carried out within the framework of our present private enterprise system, free market institutions and administrative structures.

Conclusion

We live in an interdependent world. Problems of inflation, unemployment, scarcity of resources, and economic stabilization cannot be accomplished without a coordinated effort with the rest of the world. We will cooperate with our allies and trading partners, and others to develop long-term solutions to our common problems.

Beware of the person who promises economic wonders of high prosperity, with no problems of inflation, unemployment, or maldistribution of income. This country faces serious economic problems, but they can be dealt with in an honest, sensible way if we set our sights on a steady path towards full employment, wary of inflationary pressures, and geared towards meeting national needs. Exhortation and gimmickry are not going to be very helpful in meeting the economic challenges, but good, sensible policies are. Straightforward, uncomplicated programs aiming at expanding production, getting all segments of the unemployed back to work, insuring the smooth working of our private enterprise system, and introducing reforms in the spirit of more economic equity are the kinds of policies this country needs.

It will be my responsibility as President to insure that this nation has a coherent, coordinated, short- and long-term economic policy, geared to achieve full employment, low rates of inflation, and cyclically balanced budgets. To these I am committed. These goals will be achieved.