Interview With the President Remarks and a Question-and-Answer Session With a Group of Editors and News Directors.

THE PRESIDENT. Hi, everybody. Thank you very much. It's a pleasure to be with you and to have you come to the White House.

I'd like to take 3 or 4 minutes to outline some of the problems that I face now, some of the decisions I am making, and then spend the rest of the time answering your questions that you bring here from your own communities.

ADMINISTRATION POLICIES

When I came into office about 18 months ago, my biggest problems that I faced domestically were employment-the unemployment rate was about 8 percent—inflation, which was entirely too high, and the horrible mess in the Federal bureaucracy.

Now, 18 months later, we've done remarkably well on employment. We've added a net of 6 1/2 million jobs, never before achieved, and we have the lowest unemployment rate that we've had since Lyndon Johnson was here as President.

Now my biggest problems are inflation and dealing with the horrible Federal bureaucracy. And the one that's been the most frustrating, I think, is the bureaucracy itself. I am a manager and a businessman and an engineer by background. And to bring some order out of chaos within the Federal establishment itself has been a very difficult and trying job.

When I meet around this table every week or 2 weeks with my Cabinet, that is the most pervasive problem that they bring to me—"We cannot manage the people who work under us."

The vast majority of American Government workers are superior people. They are competent and they are dedicated. And when the civil service system was established almost a hundred years ago, the idea was to reward excellence, to encourage a person to do one's best, and to remove those who are incompetent or lack motivation and, of course, to protect the rights of workers and let managers manage.

Most of those standards of management capability brought to the Government a hundred years or so ago by the civil service system have not remained. We now find an almost lock-step promotion among employees, no matter how competent they are or incompetent, no matter how dedicated they are or how much they loaf on the job.

There's no way to distinguish adequately between those who do a good job and those who don't. And with two people sitting side by side at an office, one working hard, doing his job and his neighbor's job, the other one loafing, both being rewarded the same, really discourages those who do want to spend their one life offered in public service to constructive work.

We've put forward so far, with the greatest political difficulty, the civil service reform legislation. And I know many of you are executives—I looked down the list before I came in here—and it would be inconceivable to you to spend an average of 19 months trying to remove from employment an employee who didn't care about the success of your business and didn't care about pleasing you with a genuine display of interest and proper performance. That's what it takes.

I had them put this chart up which shows in visual terms how we have to go through this extremely complicated process to discharge one employee.

The civil service reform legislation would give us a chance to protect employees' rights much more effectively, to protect the whistleblower, the employee who points out a defect in government and who doesn't want to be punished. It would give managers a chance to manage. It would reward those who do superior work, either at the management level or the average employee level, and punish or remove those who don't perform.

Now we can't remove an employee, for all practical purposes. The only thing we can do is to transfer that employee. And, of course, where they are transferred, that just spreads the problem around; it doesn't resolve anything.

I consider this to be the centerpiece of our entire effort, to reorganize the Government and to manage as President. We want the employees to do an effective job. We want them to be responsive to the American people. That is the thing that preys on my mind today, that we are approaching a crisis stage in the Congress. We've made good progress so far, and I believe that the Congress will respond if we can maintain a public interest in this issue.

In addition to what I've just described to you, which is my primary concern, I would like to briefly outline a few other points just to precipitate your questions.

Cy Vance has had a very good report to me from the United Nations. One of the most explosive issues in Africa has been Namibia. It's been a very difficult effort that we undertook, to bring together ourselves, the French, the British, the Canadians, and the West Germans to work together with South Africa and with the so-called SWAPO organization, the South West Africa People's Organization, and we've had to work with all the black frontline presidents who are in that area.

I think that we've now reached the brink of success. A new nation will be established, formerly South West Africa, now Namibia. And if things go according to our present prospects, we will have a much greater opportunity or prospect of resolving the more difficult Rhodesian question. I have to say that all the parties involved have acted well, particularly recently, and we are very pleased with this progress.

SALT talks are continuing. The comprehensive test ban talks are continuing. We've had some setbacks recently in the Mideast, but we are determined to proceed there to success. My firm belief, knowing both men very well, is that Begin and Sadat genuinely want to bring peace to the area. Their nations would benefit enormously, economically and otherwise, with peace there. If war should erupt because of a deterioration in their interrelationship, it would be a severe blow to them, to that region, and indeed to the entire world.

I think we have a good prospect this year to have a successful conclusion of the energy effort. I'm not predicting success yet. But we have four of the five elements that would result in about 2.3 million barrels-a-day saving, already approved by the conference committees, as you know. And now these five major energy packages will go to the House and Senate for a vote.

One's already been voted on by the Senate. The most difficult of those will be natural gas deregulation and pricing. And that would still leave the mechanism by which domestic oil prices could be raised to the world market price without hurting consumers, and our proposal is the crude oil equalization tax. That one is still in doubt.

I had supper with Senator Long this week, and we discussed this at length. He 'eels that once the natural gas bill is out of the way, that it will take just a few days of concentrated work by the conference committee there to come to a conclusion on the crude oil equalization tax. Nobody knows what it would be, and I'm not predicting that we'll have complete success.

But those are some of the things just today that have been problems of mine, and I would be glad now to answer any questions that you might have.

QUESTIONS

COAL PRODUCTION

Q. Mr. President, there's been little evidence in the past 2 years that there's any movement toward your goal of mining a billion tons a year of coal in this country by 1985. Coal production is now what it was when you came into office, and yet, obviously, we need more coal.

Now we are receiving reports in the coal fields that the Coal Commission that you created 4 months ago is floundering, still not completed staff, still the Commission is incomplete. What is the status of the Commission and of your efforts in the coal industry?

THE PRESIDENT. I think we will reach the goal that we established. As you know, we've had a severe setback with the extended coal strike and the disputes within the industry. I don't believe there's been an adequate analysis in the news media, or among the American people, which have to derive their opinion from you all, of what the agreement achieved. My guess is that the constant disruptions, the unauthorized wildcat strikes, the dropping productivity, will be substantially enhanced^* by the agreement that was reached.

^*The President meant to say "reduced." [Printed in the transcript.]

You are right; only yesterday I approved the last two members of the Commission. And I think now the matter will be expedited substantially, and we will have at the conclusion of their deliberations under Jay Rockefeller, the Governor of West Virginia, as Chairman, a report back to me in a limited period of time. But it's been a very difficult matter in the aftermath of that strike, with hard feelings on both sides and some distrust on both sides, to bring together management and the coal miners and their representatives, to agree on a commission that they would mutually trust.

But I think now we have a good Commission put together, and my prediction is that we will reach that goal. Prior to the time of the strike, even with the constant disruption on a local basis of coal production, there was a substantial in- crease in the production rate of coal. And I think, and Jim Schlesinger believes, that we'll reach our goal.

FEDERAL GRANTS

Q. Mr. President, relating to your dealings with the bureaucracy, is there some way that the bureaucracy can help out the smaller communities in this country who are seeking Federal grants for local projects; communities, for instance, which can't afford the expensive professional grantsmanship and planning talent? Is there any way that grants can be made more available to them or can be easier for those small communities to gain that grant money?

THE PRESIDENT. Yes, I think so. Just coincidentally, my first entree into public service was through the organization of a seven-county commission in southwest Georgia that comprised 30 towns or cities, the largest one of which was about 15,000 population. And also, coincidentally, Frank Moore, who's now my legislative assistant, was the executive director of that planning commission. He and I have known and trusted each other for a long time.

What we've done so far is to try to evolve more simplified grant procedures, cutting down paperwork, eliminating the number of forms, the frequency of forms required for application and for certification of proper spending of Federal moneys. And we've made good progress on that. We also have brought together for the first time in Washington an interagency task force to make sure that the lack of communication that previously existed is reduced.

As a Governor with a regional headquarters in Atlanta, I never could find any compatibility between HUD and HEW and Labor and EDA, which is under Commerce, and so forth, when it came to the kind of grant that you described.

And the reason for it obviously was that there was very little compatibility in Washington. You can't expect a regional office to correct a defect that exists at the heart of our Government.

Under Jack Watson, we now have an interagency task force that meets regularly, with a small staff, and I think if you would check with any regional office or those who deal with the regional offices, say, over the last number of years, you would find a substantial improvement.

So, the simplification of grant requests, the minimizing of unnecessary reports that have to be made about how grants are expended, and the coordination among the different Federal agencies are three of the things that I could mention offhand.

The last time I was out in Oregon, I had a meeting with about 35 mayors—I think 3 of the 35 were Governors—and they were highly complimentary about how housing grants and local public works grants were expedited.

And we are well ahead of our schedule, both in establishing a local public works—our new jobs programs—and also the housing program. And this is proven not because I say it, but because of the high rate of housing starts and the unanticipated rapid reduction in the unemployment rate, the creation of new jobs. And this could not have happened had we not been delivering these services more effectively.

We've still got a long way to go. I've got sense enough to know and realize that. But we are making some progress. That's a few of the things we are doing.

CIVIL SERVICE REFORM

Q. Mr. President, back to civil service reform just a minute. You said we were approaching a crisis stage in this area, and this morning Mr. Campbell told us that he's not sure that the civil service reform act will pass. If it doesn't, when will a crisis hit?

THE PRESIDENT. Well, the crisis to which I referred is in the legislative process. I think if we fail, after all the work we've done and the concentrated effort we've put on this subject to get legislation this year, it would be almost impossible to resuscitate it, to start all over again with a new Congress and proceed as far as we have now.

It was one of the most difficult political jobs I've ever had, at least in the House, just to get that bill through the Post Office and Civil Service Committee. And now, of course, it's in the Rules Committee, and now it's got to go to the floor.

The Senate has done a good job on civil service reform legislation. They did eliminate, I think ill-advisedly, the veterans preference proposal that we made. We've been very eager to see the veterans preference retained for those who genuinely deserve and need it—disabled veterans for a lifetime, and those who have been discharged in the last 10, now 15 years. But to have a veterans preference retained, say, for a naval officer who served 20 years, who has a good pension, and who comes here and bumps, because of a veterans preference, literally hundreds of other people who might do better than he does in a competitive examination, I think is ill-advised.

And when the veterans preference was originally introduced into Government employment and promotion and retention, it was designed to help a veteran in those transition years when he had been in the military service, offering his life for our country, and changed into civilian service, to let him have an advantage in getting a job. But it's been expanded from year to year into such a state that it discriminates against both other veterans, like the Vietnam veterans and disabled veterans on the one hand, and women, blacks, and others who have to be competitive.

So, the crisis that I referred to is in the legislative process, and I think the next 2 or 3 weeks will prove whether or not we will have this crucial legislation, not just this year but perhaps for a long time in the future.

INFLATION

Q. Mr. President, we've heard this morning discussion on numerous significant issues, such as civil service, the Bonn summit.

THE PRESIDENT. That was Richard Cooper. Did Cooper talk to you all about Bonn?

Q. Yes. Could you just update us in terms of the priorities of these issues as you see it today, and also perhaps just comment briefly on what I think is terribly significant, inflation, and just how you see that one?

THE PRESIDENT. I think the American people place inflation at the top of the list of things about which they are concerned. And I would say that I spend more time dealing with inflation and all of its ramifications than any other single subject. I just finished a meeting just before lunch with Charlie Schultze to not only consider immediate inflationary indications and actions that we might take but also the long-range inflationary pressures, the underlying inflation rate tied into such things as productivity per person-hour and how that productivity has decreased in our country from 3 percent annual growth in productivity to 2 percent in the last few years. This year, the indications are that productivity rate is down to 1-percent increase per year. And this has a very severe adverse effect on our country as we compete with other nations whose productivity increase is at least 3 or 4 percent, some of them even higher.

Part of that, of course, is attributable to a shift from more mechanical production jobs to more service jobs, and that's inevitable in a highly advanced society like ours. Some of it is attributable to the fact that much of the investment capital that is available has to go into repairing the lack of investment in the past in air pollution, water pollution, better health, better safety for workers.

This is something that should have been done for the last 35 or 40 years. And since it wasn't done, now to catch up and to protect us from environmental problems and for health and safety threats, you have to put that capital investment there. This means that when you do invest $10,000 in capital, you don't necessarily get that much more increase in productivity per worker.

But I think the inflation is, overall, my most severe domestic problem. It's one over which we have a limited control or influence.

I'm trying to bring down the budget deficit as rapidly as possible. In fiscal year 1976, the budget deficit was in the 60 billions of dollars. In 1978, we had brought it down in the 50 billions of dollars. This year, we'll bring it down in the 40 billions of dollars. And when I put forward my fiscal year '80 budget, on which I'm working now, it will be in the 30 billions of dollars. We're making steady progress in spite of increasing demands on the Federal Government for services. That's one thing we can do; controlling the bureaucracy that I mentioned already, of course, is another.

Inducing business and labor to exercise voluntary constraints with a deceleration formula that's very simple and understandable-that is, that when wage negotiations are concluded, when prices are established, that those wages and prices increase this year or next year less than they did the 2 preceding years—and if this can be accomplished, we can help to overcome the adverse effects of low productivity.

When I meet with the foreign leaders in Bonn, I would say the number one concern would be employment, and particularly in, say, Italy and Great Britain, even Germany. But we recognize that the two, inflation and employment, are interrelated, and we've not ignored inflation in the last 18 months in trying to bring the unemployment rate down. I don't think any economist would claim that a 5.7-percent unemployment rate would contribute to inflation. And we've tried to be very careful in the action that we've taken not to interrelate the two adversely.

The level of Government spending, waste elimination, the encouragement of more capital accumulation are all related to the things that we've proposed, including the income tax measures that we hope the Congress will accommodate. And as we increase capital available for reinvestment among the private individual citizens and corporate structures, we want to do it fairly and equitably, hopefully in a progressive way, and not reward just those who are very rich and very powerful and very influential. But I think the attitude we've taken is good.

So, in almost every area—foreign affairs, civil service reform, employment, housing, productivity, tax reform—inflation is an overriding consideration.

Q. Mr. President, just following on the issue of inflation, what could you say to the American people and through us in answer to their question: "When is my dollar going to at least stabilize? When will the costs be at least standing still, not continue to go up? Is there a time, or what can I expect in the near future?"

THE PRESIDENT. Well, I think it would be a mistake for me to mislead anyone or to put forward a projection that I don't think is going to be realized. We've got an underlying inflation rate of 6.5 to 7 percent, something like that. And it's exacerbated by aberrations which ordinarily are on the bad side.

The two most important factors so far this year that's given us such a high rate of inflation, measured on an annual basis, is, first of all, interest rates. That's the most dominant factor of all, because the interest rates on short-term loans are a part of the Consumer Price Index, and, as you know, that's self-perpetuating. When interest rates are high, the Consumer Price Index goes up. Many wage settlements and agreements are predicated upon what the CPI is. Retirement benefits, even Government wages are in part tied to that. That's one factor.

Another one is the very rapid increase in farm prices. One reason for that is that the farm prices were extremely low last year. September farm prices kind of bottomed out. The 1977 farm act, which went into effect the first of October, gives a substantial stimulation to the income level of farmers. I would say that farm income will go up this year 25 percent, probably $5 1/2 to $6 billion. Part of that is absorbed by increased exports, but part of it, of course, shows up in an increased price.

I think that if we can level off or top out the inflation rate the latter part of this year, that we will have accomplished a great deal. And then the reduction of the inflation rate will be a very slow, very tedious, very doubtful process.

WAGE AND PRICE CONTROLS

Q. Mr. President, you've mentioned this many times, but would you comment again on under what conditions, short of war, if any, would wage and price controls be imposed? And if so, what would be the probabilities of that?

THE PRESIDENT. I don't have any expectation of imposing mandatory wage and price controls. I said this during the campaign often; I said it after I was elected; I've said it several times since. Only if I thought the security of our Nation was endangered would I impose wage and price controls. And I have been through that process in the past, as have all of you. And my judgment is that even under the most severe national circumstances, that wage and price controls didn't work.

There was a time, for instance, during the Second World War, when our Nation was straining to have maximum productivity, say, in the manufacture of tanks and trucks and airplanes and so forth, and there was a severe shortage of civilian goods made by the same type of worker and using the same type of equipment and manufacturing capability. And if we had not had price controls on those competitive goods then, the prices would have skyrocketed. But even then there were some restraints on it. We didn't have wage controls. I think there was a pretty good patriotic attitude toward most workers, at ]east until toward the end of the war when we did have a series of strikes break out.

But I can't imagine any necessity for wage and price controls, unless the security of our country was actually in danger, and that would be a judgment that I'd have to make.

TAX REDUCTION

Q. Mr. President, do you see any way of harnessing Proposition 13 sentiment to the point where it helps your voluntary guidelines in restraining wage increases?

THE PRESIDENT. I can't see the direct relationship there. I do believe that Proposition 13 is an accurate expression of, first of all, the distrust of government. I'd like to restore that trust.

Secondly, I think that the people believe that government intrudes in their own lives too much. And I'd like to go along in correcting that as well.

I think people feel that government is excessively irresponsible with the taxpayers' money. And I agree with that. And we've proposed, as you know, a substantial tax reduction.

One of the facets, though, of Proposition 13 is that the emphasis there was on reducing property tax rates and with at least the visceral understanding that this would have to be made up either by Federal Government taxes or State government taxes.

California had a unique circumstance in that they had accumulated a large surplus of State taxes—I think $5.5 billion or so—and are likely to have $3 or $4 billion in surplus funds collected this year. And also, there was an extraordinarily high property tax rate in California. Even after the Proposition 13 goes into effect completely, the property tax rates in California are higher than most other States. I'm certain they are higher than any other State in the Southeast, with which I'm familiar.

So, I think there are lessons to be learned from Proposition 13, but it was a unique circumstance that would be emulated in few other States.

Another factor that I haven't mentioned is that you don't have the referendum system in many States. But I think the passage of Proposition 13 has sent a shock wave through the consciousness of every public servant—Presidents, Governors, mayors, State legislators, Members of Congress. And we've stopped and thought, what can we do to accommodate the desires expressed by the American people for modification in government and financing and taxation, as demonstrated by Proposition 13? But the exact parallel is hard to draw.

Q. Mr. President, can you tell us what you might accept in the way of a tax bill to avoid a tax increase in January?

THE PRESIDENT. Well, we've spelled out our position fairly clearly. I'm not opposed to capital gains reductions as such. I am opposed to the Steiger-Jones approach, where you eliminate the application of the minimum tax to people that, through tax shelters and other means, wouldn't pay any taxes at all. I think that is an unfair approach and it's unacceptable to me.

Other modifications in capital gains rates would be acceptable to us. One example, of course, is in the case of a homeowner who sells one's home and then who doesn't want to rebuy another home but, because of age or other considerations, wants to move into a rental apartment and so forth. That part suits me fine.

We were in favor of the accumulation of capital in an efficient way, and we worked out with the business community, the Business Roundtable and other groups that sat around this table, their preference on this approach.

A modest modification in investment tax credit, making a 10-percent investment tax credit permanent and predictable and reducing the corporate tax rates—this is what the business community preferred.

We even had a poll run among 3 or 400 business leaders of all sizes to make sure we did that. We tried to make the tax reform proposal progressive in nature so that those who earn the most taxes would pay the higher rate and to benefit the average working family members in this country, not the very high income groups of $50,000 and above, necessarily. We wanted to close some loopholes, and we also wanted to have an overall tax reduction.

In November, when we were putting this package to bed, which you have to do to present it to Congress with a budget, we thought that $20 billion would be a good figure—or 25. We found since then that because of inflation and the very rapid and unanticipated reduction in the unemployment rate, that a lower figure would be appropriate, in the neighborhood of $15 billion net.

And the last thing that we'd like to have is simplification.

So, I would say that reduction of taxes, equity improvement, progressivity, simplification are the elements of a tax proposal that we would find acceptable. I'm flexible enough. But outside of those guidelines, I would be fairly flexible. MR. WURFEL. Thank you, sir.

THE PRESIDENT. One more question, and then I'll—-

VIEWS ON THE PRESIDENCY

Q. Mr. President, in the early days of the campaign, you made a prayer breakfast speech in Miami on the theme of God and country—very effective. And I think the promise that you gave the electorate about spiritual leadership was helpful in your winning the election. Do you feel that since you've held office that you've fulfilled your goals in this respect?

THE PRESIDENT. [Laughing] No. And I don't know whether to answer that as a politician or a Christian. As a Christian, you know, I recognize that I am sinful, that I fall short of the expectations of God and my fellow human beings. And as a politician, I know that there are many times when either I or my associates have disappointed the American people, no matter how hard we try.

I think that there has been a restoration in some areas of government of the American people's trust which have been beneficial. I tried in my acceptance speech at the convention and in my inaugural speech, which was a very brief speech, to emphasize the subject of human rights, for instance.

I felt then, during the campaign, and I feel now that the American consciousness was dealt a very severe blow by the Vietnam war and by the Watergate revelations and by the violations of law that were proven against the CIA.

I felt as an individual and as a potential President that the people were embarrassed about their own Government and felt that the Nation and its image was not as high as it had been in the past, as it was originally conceived or as the American people expected it to be. And we have tried to improve that image not by misleading anybody, but by trying to stand for things that we felt were important.

Human rights in its broadest definition is one of the notable elements in that effort. We've had a concerted commitment to bring peace to some of the troubled areas of the world, and we've tried genuinely to understand the special attitudes of billions of people, literally, who in the past had condemned the United States and what we stood for.

I think we are competing adequately with the Communist nations for the hearts and souls and trust and friendship and, to be more practical, the trade and political alignments with nations that in the past were either noncommitted at best, or oriented toward totalitarian, atheistic philosophies at worst. I think we made some progress there.

But I can't say we've done an adequate job. There's a lot of inertia, and we make a lot of mistakes. But we are trying hard, and I think we are making some progress. Thank you very much.