Remarks and Question and Answer Period at the American Bankers Association Symposium on Economic Growth.
Mr. Rockefeller, Mr. Secretary, Mr. Heller, Dr. Jacobsson, gentlemen:
A hundred years ago today, in the darkest domestic crisis that this Nation has ever known, the National Banking System was rounded. It was a farsighted act and provided for a sound basis for the extraordinary economic expansion which has brought the United States to its present unrivaled position.
Today, many Americans tend to think of developing underdeveloped countries in terms only of faraway nations. But in 1863, even measured by 1963 dollars, our own per capita income--and this should be a source of encouragement to many who are laboring with the problem of underdevelopment in far-off countries--our own per capita income was less than $1 a day, approximately the same as Chile's. Nearly 60 percent of our labor force was engaged in agriculture, the same percentage as is today engaged in the Philippines. An estimated 20 percent of our population was illiterate, the same percentage of the population of Ceylon. Only one-fifth of our 34 million people lived in towns or cities of over 5,000 in population, as is roughly true now of Turkey. In 1863, this Nation had fewer railroad tracks laid than India has today, and its children had a shorter life expectancy than a child born this year in Thailand or Zanzibar.
What can be summed up in that past 100 years, I think, the history of it, can be summed up in two words, and that is "economic growth."
No nation in the history of the world has ever experienced a century of economic growth comparable to that of the United States in the last 100 years. In 100 years, the growth of our free enterprise economy under a free political system, and under the development effectively of our national and local and State educational systems, has brought our citizens to an unprecedented standard of living. It has brought to our Nation an unparalleled position in the world, as the world's foremost banker, merchant, manufacturer, and consumer. It has demonstrated the power of freedom for all to see, and sustained the cause of freedom through hot wars and cold, at home and abroad. All this and more has been made possible by economic growth.
And yet we have heard in recent times that economic growth is too abstract a concept; that it is too academic for politicians and voters; that it is too theoretical a basis for proposals to the Congress. I do not see anything abstract or academic about economic growth. It means finding 1,200,000 additional jobs every year for the men and women pouring into our labor market, half of them below the age of 25. It means preventing the periodic recessions which have hit our Nation, three times in the last 10 years. It means ending the persisting slack which has kept our unemployment rate at 5 percent or above for 62 out of the last 63 months. It kept output $30 billion to $40 billion below our productive capacity and kept corporate investment in 1962 actually below the levels of gross retained earnings. There is nothing theoretical about that. There is nothing academic about pushing our economy to 4 percent instead of 3 percent, which might total over the next 10 years in today's prices $400 billion more in output of goods and services, with all that this would mean to family incomes, wages, profits, and governmental revenues.
These are the concrete, not abstract, figures that growth represents. That is why I am pleased that the American Bankers Association has devoted this conference to that subject. And that is why I believe the most urgent piece of business before the Congress this year is Federal tax revision.
Last year, a year of recovery and prosperity for most Americans, unemployment averaged the same high 5.6 percent of the labor force as it did in the recession year of 1954. Business spending on new plant and equipment was at a lower level last year than it was in 1957, although total output and profits were much higher.
These are deeply disturbing statistics, and yet there is nothing deeply wrong with our economy. We have the most productive skilled workers in the world, and the most ample national resources, and a respected currency. We have no lack of savings or technicians or mass markets or price stability such as hampers economic progress in so much of the world today. We have, in short, no basic obstacle to growth, and we have opportunities for greater growth.
I do not believe that any thoughtful American could look at the statistics and impartial facts about this Nation's economy over that period and not conclude that we need to step up our growth. But it will not be stepped up by political slogans or homely analogies. It will not be stepped up by canceling defense contracts or lowering the debt ceiling. In my opinion, it will be stepped up only by lightening the repressive rate of wartime tax rates which put a damper on private purchasing power and profits.
The tax program I have put forward to meet this need is now under attack from the left and the right. I do not say it is a perfect program which cannot be changed by the Congress or will not be changed by the Congress, or which will satisfy the desires of all groups, or which will achieve all the growth we need as fast as we need it. But those who admit the problem, but oppose the proposed solution, of a $10 billion top to bottom tax revision, are under some obligation to put forward some proposals of their own.
Would they expect the Congress to accept, instead, a $10 billion increase in Federal spending, or a $20 billion Federal deficit? Would they propose, instead, a $10 billion injection of credit at lower rates of interest without regard to the balance of payments? At a time of record profits, would they increase tax reductions solely for corporations or investors who received a $2.5 billion tax cut last year and thereby attempt to stimulate new capacity without increasing the purchasing power of the American consumer who cannot afford to buy enough now to make use of our existing capacity? Do they feel that tax concessions, loopholes, and deductions are preferable to lower tax rates as a spur to economic growth?
These are the questions which must be answered if we Americans mean business about boosting American business. Tax reduction will not be passed if each group continues to treat growth as a crop to be divided, or if each group examines what is available through the wrong end of the telescope. Of course, if the low-income man looks at the dollar amounts of the cut, he will decide the rich are getting all the breaks, and if the high income looks at the percentage cuts, he will decide the opposite. Meanwhile, those in the middle, hearing all this, will be convinced that they will get less than either the rich or the poor.
The facts of the matter are that the reduction is fairly distributed through all income brackets. And I would hope that all groups would put national interest first and recognize that the prospects for tax reduction and economic growth must not be endangered by squabbles over who is going to get what. For it is the Nation that will benefit most from the passage of the program--and the Nation that will suffer, and all the people who make up the Nation, if the program is defeated.
The tax program we have submitted is, in fact, consistent with all legitimate ends. It is designed to expand demand among both investors and consumers, to boost the economy, in both the short run and the long run, and to achieve in time both a balanced full employment economy and a balanced Federal budget.
Heated talk about budget increases should not obscure the fact that civilian expenditures under the proposed budget will be decreased, an accomplishment which has occurred only four times in the last 15 years.
Partisan talk about swollen Federal payrolls should not obscure the fact that this budget calls for fewer Federal employees to serve every 100 people in this country than there were only a few years ago.
Exasperated talk about increasing the deficit should not obscure the fact that the enactment of the proposed tax program would add only $2.7 billion to next year's deficit, but if we slide into another recession, pulling annual gross national product down by as little as 3 percent, the deficit would be increased twice as much. In other words, the deficit, without a tax cut, would then be far higher than the projected deficit we face with a tax cut, higher even than the record deficit of $12.4 billion which followed the recession of 1958, only a few months after the President of the United States had submitted a budget which provided for a surplus of half a billion dollars. That is how quickly a deficit can unbalance a budget.
I am not predicting a recession for 1963, but we cannot escape the fact that the period of expansion between the first and second postwar recessions lasted 45 months. The period between the second and the third lasted 35 months. The period between the third and the fourth lasted 25 months, and the American economy is now in its 24th month of recovery from the fourth postwar recession.
Finally, rash talk about a crushing debt burden should not obscure the fact that by every meaningful measure, that burden under the proposed budget and tax cut will actually decline. It is true that our current national debt would be a crushing burden for an economy less vigorous than ours. It would have been a crushing burden for the United States economy in 1923, or 1863. But as a proportion of our gross national product, our debt burden is not only manageable but is steadily declining. Its weight as a proportion of our gross national product has been cut more than in half since 1947; and it will continue to fall in the years ahead.
Bankers understand better than most people that a debt, prudently undertaken, for gainful purposes, by one whose income is capable of carrying it, can greatly strengthen the debtor. Corporate debt has increased over 200 percent in the last 15 years, compared to an increase in the Federal debt of 15 percent, not because our business enterprises are wasteful or irresponsible or swollen of profit, but because they believe in growth. A transitional Federal deficit now, as a result of a tax cut, reflects a prudent investment in this Nation's future growth, but the chronic deficits produced by a lagging economy, and the record deficit produced by a new recession, would surely increase the real burden of any debt and set back that future growth.
Let me make clear the framework of fiscal prudence and economic necessity in which this tax program is submitted by making the following predictions and pledges, if the full tax reduction program I have submitted is enacted this year:
First, that this program will, in a short time, result in increased tax revenues, as did the 1954 tax cut, and a substantial portion of that increase will be used each year to reduce the deficit until the budget is once again balanced.
Second, that any increases in the Federal debt resulting from these transitional budget deficits will be kept proportionately lower than the increase in our gross national product, and thus the real burden of the Federal debt can be reduced.
Third, that any necessary increases in Federal employment will be kept proportionately lower than the increase in the national population, the increase in State and local government employment, and, through efficiencies in management and operation, the increase in the Federal workload required to serve the Nation.
Fourth, that every effort will be made to continue the present downward trend in our balance of payments deficit, and the present stable levels of our wholesale and consumer prices, levels more stable in the past 2 years, in fact, than any major industrialized country with the sole exception of Canada.
As one of your distinguished guests here this morning, Dr. Jacobsson, has said, our problem since 1959--in his speech he made in that year, prophesying that the end of the great inflationary spiral had come about at a time when most of us were still talking about the dangers of inflation--in 1959, 1960, 1961, and even in 1962, our problem is not inflation, providing we use prudence in the management of our wages and prices and in our monetary policy; our problem is to maintain our economy against the pressures of deflation in the free world.
Fifth, that no budget will be submitted by this administration which does not continue a persistent and surprisingly unpopular program of cutting costs, increasing efficiency, and weeding out obsolete activities.
I realize that all such economic prophesies and commitments in these times are subject to being displaced by national and international crises. But, subject to the same allowances, if no tax cut is enacted, I would be willing to venture a wholly different set of predictions:
First, that tax revenues will continue, year in and year out, to be insufficient to balance the budget, no matter how tight the administration and Congress control expenditures.
Second, that the country will, in the not too distant future, be struck by its fifth postwar recession, with a heavy loss of jobs and profits, a record-breaking budget deficit, and an increased burden of national debt.
Third, that unemployment and unused business capacity will remain at or above their present high levels, creating a lack of investor confidence at home and a lack of confidence in the dollar abroad.
Fourth, that the pressure for a 35-hour week, for restrictions on imports and automation, and for large "quickie" tax cuts and sharply increased Federal spending will all grow beyond manageable limits.
Fifth, that this Nation's rate of economic growth will not match over the next 10 years the record of most other industrial powers or our own record in this century.
I hope the members of this Association, and the delegates to this conference on growth, will carefully weigh these alternate sets of predictions. If the first set is borne out by the facts, we will have established in this country a brisk climate for business investment and confidence. But if the second is set upon us, by the failure of the Congress to enact an adequate tax program this year, the consequences will be with us for some years to come.
This symposium, I know, is dedicated to the proposition that such serious issues must not be decided by rules of party politics, public opinion polls, and prejudices. Your awareness of the facts and the alternatives uniquely enables you to bring objectivity and reality to a discussion now too often obscured by superficial details and too often torn by conflicting claims and interests.
As bankers who lend to both consumers and investors, to both management and labor, to rich and to poor, to middle-income groups, you recognize the needs of all. For you have witnessed in your own enterprises that the businessman's greatest need is new market demand, and the wage earner's greatest need is expanding business activity. The Nation's greatest need is a tax bill that will help fulfill both of these objectives.
Tax revision, may I say in conclusion, is not the only ingredient in a policy for growth. Education--I would certainly put up near the top of those things which, if well invested in, can provide a substantial return. Investment in education yields a substantial return in new research, new products, new techniques, in higher wages and purchasing power, and a greater supply of college-trained manpower. Unfortunately, a staggering 40 percent of all young people are dropping out before graduating from high school. Only 16 percent are completing college, and only about one-half of 1 percent are achieving the Ph.D. degrees upon which the advance of knowledge depends. We must improve the quantity and the quality of our education if we are to have growth.
There are other steps we must take if we are to step up economic growth--to improve the knowledge and mobility of our labor force, to encourage the development of new technology, to support the growth of basic science, to make the most of our national resources. But today there is no more single fruitful or urgent business than tax revision in the interest of fiscal responsibility, equity, and efficiency, but, above all, in the interest of the United States in 1963.
[A question and answer period followed.]
[1.] Q. I'm in the manufacturing business, heavy industry, in Milwaukee. I believe all of us in business are sold on a tax reduction, providing it is of the type that will stimulate business, but the question I should like to ask the President is--after all, the sanctity of the dollar is the basis of free enterprise and the basis of commerce in the free world, we've lost $12 billion in gold in the last 12 to 15 years, largely by virtue of our giveaway and by virtue of not insisting that our military allies carry their share--I ask the question whether in order to restore a stable economy and bring about growth in private industry, whether it isn't as essential that the Government budget is balanced as it is in my business or in the banking business or in any business?
THE PRESIDENT. Well, to go through the number of questions--at least the number of answers, which your statement and question suggests--in the first place I don't think you have explained fully why we have lost gold. The fact of the matter is that private industry in this country has invested about $2 1/2 billion a year over the last 10 years, and that's a dollar drain. Now, it's matched against an equity in the country that's involved.
If Chrysler spends $65 million for Simca a month ago, that is a $65 million dollar loss for us. That dollar can end up as a potential drain on our gold. As France keeps 75 percent of its reserves in gold, that is what 75 percent of that investment will end up as, a gold loss. If Ford Motor Company spends $350 million 2 years ago to buy Ford in Great Britain, that can end up as a dollar loss and can end up as--Britain keeps nearly 100 percent of its reserves in gold--that can end up as a gold loss.
There are assets against that gold. They're not liquid in the sense that the dollar claim upon it is liquid, but there is an asset; there is a Simca Company; there is a Ford Company; there are dividends. Great Britain conducted for years investments overseas which brought them and maintained their balance of payments between the wars, so that I am not adverse to these investments overseas, but I do think we should point out--in fact, they bring back nearly $2,500 million. But in pointing out the losses in dollars, it seems to me you oversimplify.
We lose a billion dollars in tourists every year. Now there is no asset against that loss, but it is a billion dollars, and represents a dollar which can be cashed against us in gold. We have attempted to tie our purchases as much as possible, our military expenditures-we now tie about 80 percent of our aid to expenditures here in the United States, and we are trying to do even better. So that we hope to cut that dollar loss or gold loss, and we are attempting to tie our military expenditures, as much as we can, and persuade our allies to pay a greater share of the burden, which they are well able to do. We have done that most recently with Italy, which is offsetting whatever expenditures we make in Italy. We have done it with Germany, under the Gilpatric-Strauss agreement, whereby the Germans pay to us for new equipment for their army what it costs us in dollars to maintain our six divisions in Western Germany.
We still lose some in Spain, we still lose some in France and we still lose some in Great Britain, and we lose about $300 million in Japan for military reasons, and we lose some in Viet-Nam and other places.
So I quite agree with you that this is a matter which deserves our closest attention. We do have, however, $50 billion of assets of the United States overseas in these investments which are against the dollar. We still do have substantial gold reserves. We still have a Western economy which is dependent upon the dollar. If you didn't have the dollar, then you would have solely an economic system based on gold, and you would have a system which is so restrictive that you would have no economic development in the United States or trade or any other country.
So I think it is a serious problem, and one that we have to give a good deal of attention to. Now, your last point is that you seek a balanced budget, and so do I. But we spend about $52 billion for our Defense Department. We spend--about $2 billion of our foreign aid also goes to our Defense Department to buy surplus military equipment, so we are not giving away quite as much as you think. We spend about $2.5 billion for our atomic energy, which is tied up with our national security. We spend $10 billion for interest on the debt. And some of you may even hold some of that debt. So that begins to move us up.
Then we spend $5.5 billion for our veterans. Then we spend $6.5 billion for agriculture. But when we suggested last year that those who benefit from this program in agriculture--at least they should put some restraints upon their production, I heard many speeches made by manufacturers from Wisconsin and other places saying that this was an unfair interference by the Federal Government in free enterprise. So the result is that you buy all that they can produce at 75 percent of parity, and they can out-produce us as far as what our demands would be every year in agriculture, as really we could in any other commodity, if we made up our mind. So that the economy, the budget, moves up.
Now, we have submitted a budget which provides for a reduction in expenditures with the exception of defense, space, and interest on the debt. Interest on the debt has to be refinanced at a higher rate than it was originally years ago and is obviously an increased cost. Space is also important to our security, and defense. The rest of the budget, even though we have an increase in population of several million, even though we are distributing, for example, in the post office, a million and a half new addresses a year, even though we have many more children in school, and from 1960 to 1970 you're going to double the number of children trying to get into colleges, so that means you will have to build as many buildings in 10 years as you built in 150 years, we are still attempting to keep our economy under restraint.
Our budget would be in good condition if our economy grew as fast as it ought to. Now I accept your view that a balanced budget is desirable, but what I'm saying is that my opinion is that unless you get a tax cut this year, you increase the chances of a recession which will unbalance your budget to a far greater extent. I already mentioned in my speech about President Eisenhower's 1958 experience--a half a billion surplus and within a few months it was a $12.5 billion deficit. If you have another recession, with the deficit we have, then I think you would be in a far more serious position.
So I don't think, sir, that your alternative is as you would hope, between a balanced budget and an unbalanced budget. My opinion is that the alternative today is between keeping this economy moving ahead and a recession, and in my judgment, the best medicine for that recession is a tax reduction.
[2.] Q. Mr. President, you mentioned in your remarks that increased expenditures of the Government would constitute one alternative to the tax reduction. I think it would be interesting if you would give us your reason for that choice, sir.
THE PRESIDENT. Well, there are many people who feel that that's what we ought to do, that cities and towns have a good many problems. In fact, in the Washington Post this morning I saw the National Housing Conference, which is meeting in Washington, is charging that the White House is lagging in its development of urban renewal, housing for the elderly, and passed, almost unanimously, I believe, 10 resolutions, 7 of which would result in an increase in Government expenditures of $4 million.
So if you run into a recession, you are going to have a good many people who feel that Government expenditures will be needed. People aren't going to--you are not going to have 6, 7, 8, or 9 million people out of work in this country without somebody thinking something should be done about it. Something is going to be done about it. You are going to have either the Government spending the money to keep them at work, or somebody else is going to. You are not going to have them around unemployed, and have the United States, in these years, as leader of the free world, accept it.
The fact of the matter is that if you take this action in time--I don't oversell it--I think we will have a lot of economic problems anyway. This is a very complicated economy, at a particular point in its development, and I am not overstating the desirability of the tax cut, but I think it is most useful at this time. But I do think that if we fail, and if we have a recession, which is prolonged, then you will have a great number of people out of work, and then you will have a good many remedies put forward, some of those that I suggested: increased governmental expenditures, a 35-hour week, which has already been advanced by the AFL-CIO, and other proposals which I don't think are in our interest. A 35-hour week at today's cost would increase your cost about 14 percent, and that would just about price us out of the international market. So I am against the 35-hour week. The thing to do is to take the action, as I have said, now.
[3.] Q. Mr. President, I believe you said that you did not predict a recession in 1963, and you say that without a tax cut we are liable to have a recession. Now, with a tax cut, tied so closely to tax reform, isn't it possible that the tax reform angle might delay this to the point where the tax cut stimulus might be lost?
THE PRESIDENT. Yes, well I would be opposed to that. What we suggested was a tax cut of over $13 billion, and reforms which would bring in about $3 billion, roughly, of revenues, giving us a total tax cut of $10 billion- We felt that, therefore, the goal is the $10 billion tax cut in the length of time which we have recommended.
If we cannot get the reform, then quite obviously you are going to have to rewrite the package. It might be possible to send up, or for the Congress to pass, a $10 billion tax cut without the reform, but that would mean changes, of course, in the rate reduction structure. So it was our feeling that from the national interest, even though I realized that some taxpayers may find it more desirable to have the simple $10 billion cut with consequent adjustments of all the rates than they would the $13 billion cut with the reform, it may be that Congress will come to that conclusion.
That isn't our judgment of the best action. But I quite agree that what we need is the bill this year, and nothing should stand in its way. Our feeling is that the best bill that can be gotten will be the one we recommended. But I would say the first priority is a bill. We have to realize that if we don't get the reforms, then, of course, the tax bill would have to be rewritten, unless the Congress made a judgment that it would accept a tax cut of $13 billion.
Our concern is that they might take a tax cut of less than $10 billion, which would be, I think, a mistake. If we are going to do this, we might as well do it right or not do it at all. But that is the choice. But to answer your question, I would say the important thing is to get the bill this year. Whatever is necessary to get that bill, I would support.
[4.] Q. Mr. President, doesn't the prospective budget deficit, as well as the continuing deficit in our international balance of payments, make it even more important than previously to prevent wage rates from increasing faster than productivity?
THE PRESIDENT. I think that wage rates ought to follow--I hope they would follow the general guidelines which have been suggested on several occasions, which are tied to the principle which you just described, that wage rates should be tied to productivity increases. The difficulty, of course, is arguing productivity increases and also discussing how increases in productivity should be divided. But I think the general principle is one we certainly support and continue to support.
The fact of the matter is that it represents that, and the other point would be a real concentration by American corporations on the export market. We've never really given it--some companies have--the attention it deserves as a Nation. But there are these markets throughout the world, and I would hope that every American corporation-that's the greatest contribution they could make.
In my earlier answer, the American businessman benefits, as well as our security benefits, from the dollar as an international mechanism. I would hope that they would concentrate as a national service as well as one that would bring them a private return, that they would concentrate their energies on developing their export market. That can make a great difference to us. If management and labor can be responsible in the next year or two, and there is a concentration on export markets, I think we have a much better chance to lick the problem.
One of the points that I think is worth making is that there are these dollars overseas which represent a call on our gold. If our economy is doing well, then I think that people will have confidence in the dollar, and that serves the whole Western community. If we were dependent only on gold--and gold which, after all, increases by what-$700 million a year, probably?--how could you possibly finance the tremendous movements of trade which we now have in the world unless you have sterling and the dollar which gold supports? If you just use gold, we would be back to 1929, and you would have the most restrictive effect on our economy, and on our free flow of trade and, therefore, on the defense of the Western World.
What we are really talking about is not only the national security, but if the United States does not maintain its economy in good position, then Great Britain cannot afford to take those steps which will provide a stimulus to her economy at home, and in addition, those countries of Latin America, particularly, which sell their raw materials to us, will be depressed, so everything hangs upon us. So everything hangs upon our maintaining our economy effectively and maintaining the kind of discipline which your question suggests.
Can I have one more? I know you have other speakers.
[5.] Q. Mr. President, you have commented on the potential or possible recession and its magnitude, referring back to 1958. Would you care to comment, if your tax proposal is enacted, what the magnitude of the potential might be with regard to economic stimulation?
THE PRESIDENT. Well, I think that we have talked about the--three or four times-stimulus which a $10 billion tax cut would have, which would be $30 billion, three times, 300 percent, which we would hope, and also, of course, which would also bring a return in revenues. That's why we feel that the combination of the stimulation on our economy of the multiplication factor of three times, and also the additional returns this would bring to Federal revenues, makes us feel that the proposed tax cut is fiscally responsible.
As I said at the beginning, if we were going to err, I would certainly err on the side of a large enough tax cut, not to go through this laborious, painful procedure which we are all going through and then bring forth a mouse. I would hope that we would bring forth one that would do the job.
Thank you very much.
Note: The President spoke at 10 a.m. in the Grand Ballroom at the Mayflower Hotel in Washington. His opening words referred to David Rockefeller, president of the Chase Manhattan Bank of New York, who served as chairman of the symposium; C. Douglas Dillon, Secretary of the Treasury; Walter Heller, Chairman of the President's Council of Economic Advisers; and Dr. Per Jacobsson, Managing Director of the International Monetary Fund.
John F. Kennedy, Remarks and Question and Answer Period at the American Bankers Association Symposium on Economic Growth. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/236992