Speech

*- < V, FOR RELEASE ON DELIVERY EXPECTED AT 9:30 A.m. WEDNESDAY, JANUARY 30, 1980 STATEMENT OF JAMES T. McINTYRE, JR. DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET and G. WILLIAM MILLER SECRETARY OF THE TREASURY and CHARLES L. SCHULTZE CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS BEFORE THE SENATE COMMITTEE ON THE BUDGET Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I. Economic Program and the Outlook The 1970‘s were a decade of economic turmoil. The price of oil tose more than tenfold. The wotld's cost of importing oii swelled from less than $25 billion at the beginning of the decade to almost $300 billion at the end. In the middle of tne decade the world experienced the largest recession of the past forty years. Inflation averaged mucn higaer than in tne prior t.o decades; inflationary expectations became embedded in tne consciousness of consumers and businesses; and the decade closed with inflation cunning in double-digit figures. Finally, the pace of productivity, upon which the advance of our real income and living standards ultimately depends, slowed sharply. As we enter the 1990 's, economic policy has to concentrate cr. three major priorities: — controlling and then reducing inflation; — adjusting to a world of higher energy prices, and reducing our dangerous dependence on foreign oil; — improving the structure and functioning of the American economy so as to restore a healthy growth in productivity and real incomes. Shile the problems and challenges that confront economic policy are difficult ones, it is reassuring to recall that tne American economy has made substantial progress on many fronts during the past several years. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 Output and Em?lovment Du rin u th e Ex pans ion Three years ago our economy was suffering from very aiga unemployment and idle plant capacity* Secovery from the severe recession of 1974-75 was still far from complete. Bajor progress has been made during the past three years in bringing toe Nation’s numan and capital resources bacx into proauction- Real output is almost 12 percent above its level 3 years earlier. Adjusted for inflation, after-tax income per capita has increased 7-1/2 percent. Increased use cf plant capacity was accompanied by a heartening rise of business investment in tae new plant and equipment we need fcr future growth cf output and better productivity performance- Gains in employment over these past three years 4.1 nillion now jobs in 1977; 3.0 million in 1978, and 2.1 million more in 1979 -- have been phenomenal. Employment growth in recent years has no parallel in the postwar period. Two particular features of the employment expansion have been particularly encouraging. First, job creation has been concentrated in the private sector. Employment at private nor.rarm establishments climbed 14 percent over the past three years, waile state and local government employment increased 4 percent and Federal employment was essentially level. Second, employment gains have been largest for those groups most in need of jobs. For every 100 black adults holding a gob in late 1976, there are now 115 gainfully employed. Fcr every 100 blacx teenagers at work then, 115 are at work now. For every 100 Hispanics with jobs three years ago, there are now 120. As idle resources were increasingly put to work, it became necessary to shift policy towards restraint in order to moderate Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 economic growth. We reached that point over a year ago, when accelerating inflation also required greater fiscal and ironetary discipline. The pace of economic expansion in 1979 slowed more than expected, however, largely because of the heavy blow to the economy from rising OPZC oil prices. The economic effect of aignet oil prices on the economy is similar to that of an excise tax. Because prices are increased, real purchasing power of consumers is drained away- The higher revenues or OPZC oil producers and domestic oil companies are only gradually spent on additional imports and investment projects. The economy suffers a net reduction in demand and output. The Council of Economic Advisers estimates that the net drag on the economy imposed by last year’s rising oil prices was eguivaler.t, by tae fourth quarter, to a tax increase of .53 billion, far larger than the tax relief provided by tne Revenue Act of 197b. Of course the increase in the price cf imported oil was unli.ee an excise tax in one crucial respect: it extracted real weaita from our economy, an effect not reversible by domestic tax reductions or spending- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 4 - Table 1 Growth of Major Components or Heal GNP (Fourth Quarter to Fourth Quarter) (Percent Change) 1978 1979 4.8 u • 8 Heal GK 4.5 1.0 Fersonal Consumption expenditures 10. 5 1. 7 Business Fixed In vestment.......• -b. 3 Residential Cons truetion......... J/ Government Purchases of Goods and 1.7 0. 1 Set vices.• 4.3 0.9 Domestic Final Sales.. Change as a Percent of Beal GNP 1978 1979 -O.o Inventory Accumulation J/ 0.5 0. 5 Net exports- 1/ Less tnan .05. The drain of purchasing po.ee was so large that, the total after-tax incore of consumers, adjusted tor inflation, remained unchanged over the four quarters of last year. Since consumers were willing to reduce their rate of saving substantially, aowever, consumption expenditures in real terms continued to inctease, but more slowly than in 197e. Otaer major categories cf demand also weakened in 1979. The rise of business capital spending also slowed, and residential construction declined. Businesses curtailed their orders and production to xee? inventories in balance with slowing sales; consequently, the rate of inventory accumulation at the end of 1979 was below the year- earlier level. Set exports of goods and services rose in 1979, however, as the volume of exports rose substantially more than tne volume of imports. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 Although, as shown in Taole 1, real output rose less than 1 percent during 1979, employment continued to increase strongly. Demand for laser was sustained by a sharp decline in productivity that aggravated inflation and put a squeeze on the profit margins of most American businesses outside of oil companies. The profit share of total output originating in nonfinancial corporate businesses other than petroleum ar.d coal companies foil 15 percent during the first 3 quarters of last year- Declining profit margins, a gradual increase in excess capacity, and concerns about the possibility of recession contributed to the substantial slowdown in the pace of business capital formation last year- Business purchases of cars and trucks declined sharply. Since the growth of real GUf slowed even more than the rise in business fixed investment, the snare cf total real output devoted tc business outlays for new plant and equipment was a little higher last year than in 1978. hut the proportion of our national output devoted tc increasing and modernizing our capital stock is well belcw that cf most otaer major industrial countries. It is also below the amount required to assure long-run improvement in productivity anc tc meet increased needs for energy and the requirements of environmental, health, and safety regulations. [Inflation Developments or. the inflation front were tbe most significant Jisappointirent in the 1979 economic performance- At the Beginning of the year, it was widely exacted that inflation ,ould moderate. Those hopes were destroyed, however, by skyrocketing energy prices. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 Last year, the consumer price index rose by ever 13 percent. Within the index, energy prices rose by 37.4 percent. Had energy prices risen at the previous year’s rate of 8.0%, the CPI would have increased by 2-1/2 percentage points less, considering only the direct effects of energy prices cn the index. Sharply rising costs of home purchase and finance alsc added a large element to CPI inflation. Ihe way the CPI treats tne cost of purchasing a home, and the associated costs of heme financing, tends to overstate the rise in the cost of living to the averaae consumer when home prices and mortgage interest rates increase rapidly. Beginning with the December CPI, the Eureau of Labor Statistics has begun to release data that provide additional perspective on changes in consumer prices. For example, tne Department has calculated the cost of heme ownership in a way that makes it roughly equivalent to rent. If this rent index is substituted for the aomeevnership and finance component cf the CPI, the rise in consumer prices last year is found to be 10.8 percent. And when energy is removed, the alternative index rises only about 3.0 percentage points in 1979, the same as in 1378. The President’s program of voluntary standards for pay and price incresaes could not prevent the rise in OPEC oil prices or the increases in housing and aome finance costs. Eut they were instrumental in keeping the rising inflation in these areao *.rom setting off a major acceleration of price and wage increases elsewhere. Compliance with the program was widespread. Althougn the overall rate of inflation rose to 13 percent, increases in wages and fringe benefits were no higher than in 1973. Ihe rise in prices of goods and services outside of energy, housing and Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7 unit costs of hone finance was less than the rise in the grea ter taan production, and as pointed out earlier, very little spilled over in 1978- Had the huge increase in energy prices prices, cur into the bread structure of industrial wages and many years to basic inflation problem would have worsened for come. Shy the Economy /avoided Secession _in 19 79 The economy's resilience in the face of dramatic increases in oil prices and tae attendant worsening of inflation was one or the more surprising features of economic developments in 197,. forecasts of impending recession were becoming frequent by late 1S78, long before the magnitude of the 1979 rise m CPEC oil prices was perceived- By the middle of 1979, they were common. Yet, the characteristics of cumulating recession are still not in evidence at the present time. The reasons why the economy was able to absorb tae shocks or rising oil prices, a substantial acceleration of inflation ano sharply rising interest rates without going into a steep decline are only partially understood. Three factors, however, have played a role. First, individuals as consumers and homebuyers appear to be fore strongly affected by inflationary expectations now taan in the past. Such expectations help account for the further decline in the personal saving rate during 1979, and fcr the continued strength of housing sales until late last year, despite a rise or mortgage interest rates to unprecedented heights. Second, monetary restraint no longer produces the abrupt changes in availability of credit to borrowers that used to bring Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 an end to economic expansion- A number of changes have taken place in financial markets during recent years that have removed cr reduced the constraints which used to limit access tc credit by some borrowers during periods cf general credit restraint. The most recent of these -- the introduction in mid-1973 cf money market certificates of deposit sold by banks and thrift institutions — has been a major factor sustaining credit flews tc housing. because of these developments in financial markets, monetary policy now works more through changes in interest rates that affect a borrower’s willingness to incur debt, and less thtough charges in his ability to obtain credit. ber this reason, monetary restraint now tends to affect aggregate demand less abruptly and with a less uneven impact across major economic sectors. As events in financial markets late last year attest, however, significant changes in monetary policy may still lead to constraints on the availability or credit, particularly for ho using. Third, the continued growta of the economy last year reflects the relative absence of cyclical imbalances characteristic cf earlier periods of economic expansion. Most notable in this regard is the fact that inventories have remained in good balance with sales throughout the expansion. When consumer spending declined in the second quarter of last year, therefore, businesses did not find themseives seriously overstocked. To be sure, auto inventories, particularly for large cars, increased substantially, and major auto producers are still trying to redress the balance between stocks and sales. in other industries, however, production cutbacks to reduce excess stocks remained modest in 1979. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 Economic 0utlook Ihe unsettled state of world oil markets and the unexpected resilience of the economy last year makes forecasting in 1930 an unusually hazardous exercise. The factors that sustained growth in 1979 will continue to affect economic performance ir. 1980. Eut it is unlikely that they will cushion the economy’s response to shocks to the same extent tnat they did in 1975. I] Key elements of the economic forecast underlying the fiscal year 1981 Budget are shown in Table 2 below. Table 2 Key Elements of the Administraticn's Economic forecast 1980 19b 1 Seal GN? Growth (Q4/Q4, Percent)............. -1.0 x. 9 Unemployment Hate (Q4, Percent)......... 7.5 7. J Increase in the CPI (Dec./Dec., Percent) 10.4 b. 6 Over the four guarters of 1980, real GSE is torecast to decline by 1 percent; in 1981, an increase cf 2.3 percent is expected, as indicated in the table. This forecast is broaoly in line with many others, including that of the Congressional Budget Office. The decline in real GNP this year is expected to te accompanied by an increase in the unemployment rate to about 7-1/2 percent in late 1980. Resumption of economic expansion next year, however, is expected tc bring unemployment dewn to 7-1/4 percent by tae end of 1931. The forecast assumes that the economy will head into a mild recession in the first half of this year. Housing starts turned down in tae fourth guarter of last year and may decline somewhat Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 10 - further. New car sales also fell, and auto companies have curtailed their production schedules for the first quarter of 1980 to reduce abnormally large inventories, especially of large, fuel-inefficient models. The downward pressure cn consumers’ real incomes, resulting from rising oil prices and increasing marginal tax rates caused by inflation, is continuing. iith the personal saving rate already at exceptionally low levels, slow growth or real income is likely to mean sluggish consumer markets. Current indicators suggest, moreover, that real business fixed capital spending will turn down moderately in 1920. As final demand weakens, the rate of inventory accumulation may also fall somewhat further. If a recession does occur early this year, it is likely to be brief, mild and largely over by mid-year. A large cutback in production to reduce inventories has often magnified recessionary forces in the past. Such a development is unlikely this year because the cautious inventory policies followed most business firms have prevented a large buildup of undesired stocks. Interest rates are likely to decline because of the abatement of credit demands in a weakening economy. This would permit housing starts to turn up in response to strong underlying demands. The rise in consumer prices is expected tc slew somewhat this year to about 10-1/2 percent. This moderation of inflation during the course of 1980 will contribute tc strengthening consumer purchasing power. Early this year, we will continue to face the shock effects of the latest round of CfEC oil price increases. Once those effects wear off, the rise in energy prices is expected to moderate. Moreover, in a weak economy, cost increases will be more difficult to pass through to product Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 11 prices. Mortgage interest rates may also come dcwn frcrr their very high present levels. Next year, a further reduction of inflation tc around 8-1/2 percent is forecast- Ey any historical yardstick, however, inflation next year will still be extraordinarily higa- The progress against inflation we expect, and which we sorely need, would not be achieved ir last year’s sharp increase m energy prices and the costs of home purchase and finance were to spill over into wages, costs, and the broad range of industrial and service prices. Preventing that from happening is the first priority for economic policy m our country in 1980- The problem is not ours alone. Every oil importing country around the world is racing starkly higher energy prices and a potentially dangerous acceleration of inflaticn. So one can be satisfied with an economic cutloox fcr this year that implies declining real output, rising unemployment, and continuing very high inflation. Appropriate economic policies car help tne economy adjust to the impact of recent CfEC cil price increases. But no policies can change the realities which these increases impose. Economic policy at the present time must held firm against inflation, despite the prospect cf a weakening economy. *ae Administration recognizes, however, that fiscal policies cannot be set on an unswerving course regardless of how economic developments unfold. Be will monitor developments closely tais year. Ir economic conditions and prospects deteriorate significantly, we will be prepared to take corrective action in ways and under circumstances that do not aggravate inflation- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 12 II. The_ 1931 Budaet and Fiscal_Policv The fiscal policy in the 1991 budget recognizes that inflation remains our paramount economic problem. If «€ do not deal effectively with inflation, the very substantial economic progress achieved under this Administration will te reversed, and cut long-term goals of balanced growth with full employment and price stability will be even more difficult tc achieve. Ihe 1991 budget is, therefore, a restrictive budget. Ihe growth of budget outlays is held to the lowest rate consistent with our national security and energy security objectives and the most urgent domestic requirements. Budget increases for less critical neecs have been rejected. There are no majcr tax reductions. This austere budgetary policy is a necessary condition roc controlling inflation. Feasons for Fiscal restraint A restrained budget is necessary to lower inflationary expectations. There have recently been disquieting signs that consumers expect high inflation to continue indefinitely, as a permanent fixture of economic life. Sorkers and businesses increasingly appear to make their wage and price decisions on toe basis of that expectation. Such expectations could become self- fulfilling, leading to a dangerous wage-price spiral which would do permanent damage to the economy. The public must be convinced that this will not happen, and make their price, wage, bcrrowin, and expenditure decisions accordingly. Budget restraint is also necessary because forecasts are highly uncertain, and there are risks to any policy. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 13 present circumstances, the risks cf a restrained fiscal policy are far less than toe risks of fiscal stimalus. Expansive policies are difficult to reverse, and the long-term inflationary damage resulting from a mistakenly expansive policy would be severe. Or. the other hand, if economic conditions should significantly worsen, changing to a policy cf less restraint would be less difficult. A restrained budget is also necessary tc preserve tae international confidence in the dollar reguired to prevent destabilizing and inflationary exchange rate changes. A bloated 31 cudget would be a signal to the world that the United States has accepted double—digit inflation and is unwilling to idxe tae sacrifices needed to restore price stability- This could be damaging not only for the U.S., but for the world trading and financial system, as well. For the longer-term, budgetary restraint is reguired to generate the savings and capital rormation reguired fcr higher productivity growth, lower inflation, and rising employment and living standards. Pederal spending -must be held down to make resources available for additional capital formation, and this will be especially difficult at a time when demands on tae budget frcm energy and national security teguirements are growing, because of the difficulties in controlling expenditures m tae short-term, this long-term problem must be addressed now, in the 1981 budget- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 4 He straint ir the 19 31 Budget Thia budget recommends outlays for 1981 of 1615-8 billion. This is effectively a zero-growth cudget; after allowing fee inflation, 1961 outlays are at virtually the same level as 1930. Receipts are estimated at 5600-0 billion, and the recommended deficit is $15-8 billion, the lowest in seven years. Because cf the urgent necessity for fiscal restraint, tax reductions are not proposed. The only major tax proposal included in tne budget is the windfall profit tax. Table 3 THE 3UDOET TOTALS (in billions cf dollars) 1979 Estimated actual 19 50 1981 1982 1983 Fudaet receipts................ ub5. 5 523. 5 6 0 C . 0 691- 1 793. 3 Budget outlays........ 493. 7 5o3.e 615.8 6 86.3 774. 3 Surplus ot dericit (-) -27.7 -35.8 - 15. 3 ♦ 4.8 ♦ 24. 5 budget authority.... 5 5o - 7 65u.O 696. 1 7 75. 1 8o8 • 5 It is regrettable that present difficult economic conditions dc not permit a balanced 1981 budget. However, the proposed 1981 deficit marks substantial progress toward that goal. Tae deficit proposed for 1981 is 550 billion lower than when Eresident Carter ran for President. As a percentage cf the budget and or the GNr, the proposed deficit is the second lowest of the preceding decade, and less than a third of the average for the 197Cs. If, contrary to our expectation, tae economy were to expand rapidly encugh to keep the unemployment rate at its current level, tae 1951 budget would be in surplus by about 515 billion. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 15 A common measure of fiscal stimulus or restraint is the change in the high-employment budget surplus or deficit, a treasure which excludes the budgetary effects of changes in the degree of resource utilization. This treasure of fiscal restraint increases from a 312 billion deficit during fiscal year 197S to a surplus of 5b billion in 1330 and a surplus of 357 Billion in 1961. The 19o1 budget thus continues -- and intensifies -- the policy of fiscal restraint oegun earlier. The increase in the high employment surplus from 1979 to 1931 is over 1-3/4 percent cr GN? -- a very substantial degree of restraint. Budgetary stringency can also be measured by examining proposed budget outlays in comparison with current services, tae level or spending required to maintain existing program levels. The level of outlays in FY 1981 is only 0-63 above the level needed to maintain the current level of services. Tne 33.7 billion difference is more than accounted for by 5b.3 billion of increased spending on defense and energy, which are critical tc our national security. The rest of the budget shews a reduction cf 52.5 Dillion below current services. Because the 1931 budget is restrictive, the pressures tc expand it will be strong. Unemployment later in 1960 and in 1*3 1 is expected to re higher than it is today- Businesses will need greater incentives to invest in plant and equipment. worthwhile social programs will seem to requite additional funding. dany of these needs are legitimate, and under other circumstances they might deserve room in the budget. Eut the harsh reality of inflation makes it critical for the Congress tc resist those pressures, as the Administration has done Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 16 Ba jor Budget Priorities The budget is more than ar. instrument cf macroeconomic policy. It is also a means of addressing the needs of our society and the ordering of national priorities. Althouga spending growth has been held to a minimum in this budget^ tne President has recommended program increases in a few critical areas. Tne most important of taese in 1981 are defense, energy, basic research, and the development cf cur young people. Defense. — when the Administration assumed office, real defense spending had declined for almost a decade. Even ir. 1978, outlays tor defense largely reflected decisions of the previous Administration. In real terms, these outlays were lower than they had been four years earlier. In the 1979 budget, the President proposed a long teru- policy or substantial and sustained growth in real defense spending. Developments in Iran and Afghanistan during recent months attest to tais need. Therefore, this budget proposes a defense program in I98x. of $153.2 billion in budget authority, an increase or over 5% in real terms. Outlays for defense will be 5142.7 billion, a real increase of over 3%. with this budget, spending on defense will have increased by 9.4X in real terms since 1979. This Administration is committed as a matter of fundamental pcxicy to continued large real increases in defense spending beyond 1981. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 17 Energy.—Solutions to our energy problem are essential for both economic progress and national security. This budget reflects the important progress being made by tais Administration, in cooperation with the Congress, through a bread and practical program addressing the energy problems the Nation is facing in this new decade. The 1991 budget assumes that, early in the 1930 session, the Congress will pass the crucial treasures proposed last year: the windfall profit tax, the Energy Security Corporation, the conservation measures and the Energy Mobilization 5oard. The energy program supported in the 1991 2udget is comprehensive and balanced, addressing both production and conservation. To stimulate production, it recommends resources for the Energy Security Corporation that would help tc create a synthetic fuels industry, and it supports major increases for solar, fossil, and fusion energy. It provides for an ambitious gasohol program and emphasizes safety and the solving of current problems in nuclear fission programs. Overall, spending on energy programs will increase tc 39.1 billion m 1991, an increase of over 90% during the first four years cf this Administration. As the Nation adjusts to energy scarcity, we must protect those who are most vulnerable. Much of this protection is achieved automatically, through programs such as social security and retirement which are indexed to the cost cf living. The 1991 budget expands this protection, providing funds for the poor ror weatherization of their homes, and for energy cash and crisis assistance. In all, the 1931 budget proposes 32.4 billioxi in Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 1b - energy assistance for the disadvantaged, an increase of SO* over the 1960 level. Youth Employment.—Despite the economic gains that have been made over the past three years, youth unemployment, especially for minorities, remains distressingly nigh. when youth have significant employment problems upon leaving school, their employment and earnings may be adversely affected for a lifetime. To eliminate this waste of natioral resources, this budget proposes a major new education and employment initiative designed to prepare today’s youth for the labor market of the 1980*s. This program will help schools tc provide disadvantaged youtn with the basic skills needed to get and keep jobs, arid to reinforce those skills with job experience in the private sector. Lisadvantaged youth out of school would acquire these basic skills in improved training and employment programs, by 1932 this program will add 32 billion tc the over Sh billion currently being spent on education and employment programs fcr 14 tc *1 year old disadvantaged youth- basic fiesearch.—between 1966 and 1975, federal spending for basic research, measured in constant dollars, declined substantially- In order to maintain our Nation’s position as a leader in the development of new technology, the budgets of this Administration have increased real spending on basic research each year. The 1931 budget continues this policy and provides for major and sustained increases above the rate of inflaticn for all research and development programs. Obligations fee research and development will increase by 133; for basic research by 1x3. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 19 Since 197b, obligations for basic research will have increased by 40 5, or 95 in real terms. Agriculture.—Because of the aggression cf the Soviet Unicn against Afghanistan, the President has significantly limited Soviet grain purchases from tne United States, while at the same time taking steps to ensure that the burden cf the expert limitation does not fall disproportionately cn farmers. Specifically, the Secretary of Agriculture will: — Purchase from shippers contracts entered into with the Soviet Union and sell the contracts tack into expert markets only at prices above these prevailing on January 4. __ If necessary, take title tc the grain intended for expert to the Soviet Union and isolate it from the market. — Purchase up to 4 million metric tons of wheat for an international food aid reserve. — increase the loan level for feed grains and wheat by 10 and 15 cents per bushel respectively. — Expand CCC export credit guarantee coverage to include full commercial risk. __ Modify the farmer-owned grain reserve to encourage farmers to place additional grain in their reserve. __ Purchase grain in local markets to stabilize markets and relieve the congestion of grain in transit to major ports. It is estimated that these measures will increase outlays by *2.0 billion in 1980 and SO.8 billion in 1981. In addition, tne President will propose additional funding for P.L. 480 for rY 1980 and FY 1981 of S100 million per year. The Administration Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 20 steps if these actions prove stands ready to take farther insufficient, raking care, however, to avoid long-term distortions in out basic farm policies- Initiatives to Reduce Rederal Spending These initiatives of hign national priority nave been proposed in the context of overall budgetary., restraint. Tne reguired restraint has made it essential to propose a number of reductions in federal programs- Restraint has been applied carefully. For tae third consecutive year, zero-base budgeting has been used to establish priorities that put taxpayers* dollars to test use. Desirable new programs have teen deferred. Increases in existing programs have been limited. Past erforts to achieve program efficiencies and improve management are beginning to pay off, and further efforts in this direction are undertaken in this budget. Reductions in lower priority programs have been proposed, and this budget contains specific outlay reductions of 59.7 billion from current service- levels. A substantial portion or these reductions take the form of legislative proposals that would reduce Pederal spending. Together, these legislative proposals will reduce Federal spending by 55.6 billion in 1931 and by significantly larger amounts in subsequent years. Savings would be achieved through several health-related proposals, modification of entitlement programs tc relate benefits mere closely to need or tc earned rights, increased administrative efficiencies, and reduction or waste, fraud, and abuse. In addition, this budget contains proposals to reform Federal compensation practices and procedures, place the railroad retirement system on a solid Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 21 financial footing/ and dispose of excess materials in the national stockpile of strategic materials. Large spending reductions are extraordinarily difficult tc achieve in the immediate budget year/ because sc much of the budget is relatively uncontrollable in the near-term. In the 1961 budget/ fully 77a ot outlays are classified as relatively uncontrollable, and these will account for $37 billion of the 332 billion increase in total outlays between 1930 and 1931- The retraining 315 billion will be due entirely to increases spending for national defense. The rest of the budget, in total, has seen held at the 1930 level. For every increase in spending tor controllable, non—defense programs an offsetting reduction within ether programs has teen made. As inflation gradually comes down, its severe impact on the growth of budget outlays will oe mitigated- Hut future spending levels can only be be held down by efforts begun-, new — in 1*61 — to hold the lid on spending initiatives. Receipts Total receipts tor 1981 are estimated to be 3600.0 billion, $76.2 billion more than in 1930 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 22 Table 4 ESTIHATED UNIFIED BUDGET BECEIPTS (Fiscal years; in billicns of dollars) 1979 1980 19b1 Individual income tax.............. 217.8 238. 7 274. 4 Corporation income tax.... 65.7 72. 3 71.6 Contributions for social insurance...... 141. 6 162. 2 187.4 Other receipts. 40. 8 50.6 OD. 6 Total......-............ 465.9 523. 8 6 0 0.0 r These estimates assume a windfall profit tax whica, on a ret basis, produces excise tax receipts of $5.5 billion in 1980 and $13.9 biliicn in 1991. The windfall profit tax will ensure that the burden of higher energy costs is equitably shared, and will provide additional receipts to finance energy programs essential to our economic well-being and national security. Because the windfall profit tax is deductible, it will reduce the corporation income tax liabilities cf oil firms. This, combined with lower growth in corporate profits due to a sluggish 19S0 economy, results in a slight reduction in corporation income tax receipts in 1981- Cor.trol of Federal Credit Activities In recent years, direct loans and loan guarantees have come to play an increasingly important role in economic policy. Unfortunately, too much of this activity has escaped the normal discipline of the budget process. In the 1980 budget, we announced our intention to institute a system to control the use of Federal credit. This system, which is now in place, recommends specific credit limitations for most credit programs. It also provides estimates of the new direct lean obligations and Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I « - 23 - new loan guarantee commitments tc be made in the coming fiscal year. Table 5 THE C3ED1T 2UEGET TOTALS (in billions of dollars) 1979 1980 ... 51.4 59.7 60.7 fj © W (lit cCt lOdn OOil^dwlJUOee******* 74.7 75. 2 -81.4 N G W lean ^UdLdiiLCt: U Uunl UH “ X I V. ••••••« 126.1 134.9 142. 1 In 1931, new direct loan ooligatior.s increase by 1-7% over 1930 compared with a 16.1% increase in the previous year. Lean guarantee commitments, on the other hand, increase 8.3* in 1981 after increasingly only a small amount in 1980. The total increase tor direct loans and loan guarantees together is 5.3% in 1981. The credit control system is an important improvement of Federal budgeting practices. The new system has three long-run goals: __ To ensure that credit programs meet the purposes for which they were intended, that they dc so effectively, and that the level of resources is justified. — To provide a closer examination of the allocation of credit and real resources across broad sectors cf the economy Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 24 - To encourage more careful consideration of the impact of total Federal credit activity cn the private economy as a wnole — cn the borrowing needs of the private sector, and on economic growth, inflation and unemployment- This new system of credit control, in conjunction with zero based budgeting and multi-year planning, will help ensure that the government runs more intelligently and efficiently- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 25 III. Other Measures to Fight Inflation Budgetary restraint, of course, is not the only anti- inflationary policy at our disposal. But it is a necessary condition for the success of other policies. Fiscal discipline must be combined with responsible monetary policy to provide the economic environment necessary to reduce inflation. But more is required. Inflation has been building in our country for IS years, and its momentum is very strong. Reducing inflation cannot be accomplished by traditional macroeconomic policies alone without enormous losses of output and jobs. Maintenance of effective standards for pay and price restraint is essential, “e must also attack other structural causes of inflation, especially those related to energy and low productivity growth. Monet?rv Policy Policies of monetary restraint are never popular. They hit some sectors harder than others. They are associated with shortages of credit and high interest rates, even though those developments stem principally from the forces of inflation that dictate monetary restraint, rather than from those policies themselves. However, inflation will not come down unless the growth of money and credit is gradually reduced to a rate consistent with lower inflation. The Federal Reserve has been pursuing a responsible course. Growth of the major monetary aggregates was within the established target ranges last year, when an excessive pace of monetary growth did emerge in mid-1979 the Federal Reserve took steps to deal with the situation. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26 In the first few weeks following the Federal Seserve's October b actions, there was considerable turmoil in financial markets. Interest rates rose sharply, and uncertainties were created in the minds of lenders and borrowers regarding tne outlook for the cost and availarility of credit- Mortgage markets were most severely affected. Subsequently, however, interest rates on market securities I began to decline. Credit has now begun to flew mere freely tc mortgage borrowers, and mortgage interest rates have declined somewhat in some regions of the country. fchile housing starts have been adversely affected, the decline has been much less substantial than in previous cycles. Moreover, mortgage credit flews and housing construction will be sustained early this year by the temporary Federal preemption cf State usury ceilings. These painful effects of monetary restraint are a price tnat has to oe paid to prevent the excess growth in mcney and credit which would aggravate inflation. Ey placing greater emphasis on the supply of bank reserves, the Federal fleserve's present operating strategy will allow more effective control ever tne growth of money and credit. Growth in virtually all cf the monetary aggregates fell back to a moderate pace during tne closing months of last year, and interest rates have saewn remarkable stability recently. If the pace of economic activity slackens next year, a modest decline in interest rates should accompany reduced demand for credit. However, a significant and lasting decline in interest rates cannot be achieved without progress in reducing inflation. The relatively small deficit that will result frem the Administration•s 1981 budget will help to relieve pressures m Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 27 rinancial markets. Net Pederal borrowing from the public will be an estimated 533 billion in FY 193 1, compared with 534 billion in FY 1979, and 544 billion in FY 1933. Private credit demands in 1980, however, are expected to decline by more than the increase in net Federal borrowing. ar.d ?r ice Policies Dealing effectively with inflaticn requires policies aimed directly at promoting restraint in wage and price increases m the private sector. The cooperation of business and labor in adhering tc voluntary wage and price standards is essential in this endeavor. Standards for wages and prices are not only a means of reducing inflation; tc the extent that they succeed, they reduce the burden on monetary and fiscal policies in fighting inflation, ar.d thus make increased employment and output possible. The standards have a critical role to play in 1930. Cur most immediate problem this year is tc prevent last year’s large price increases in energy and housing from spilling ever into wages, costs, and the broad range of industrial and service prices. Shculd that 'happen, inflation cculd worsen for many years to come. Tc promote continued cooperaticr with the standards, tne Administration and organized labor arrived at a National Accord announced on September 23, 1979. The Accord called for the creation of two advisory committees, cne on pay and one on prices. The Pay Advisory Committee consists cf representatives frem labor, business and the public and has already recommended a number of modifications in the pay standard. Fcr the basic pay Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 28 standard, the recommendation contemplates that paj increases in ncriral ciicumstances would average 8-1/2%, with possiole variation within a range of 7-1/2 to 9-1/2 percent. The Council on Wage and Price Stability is new reviewing this recommendation. £nergv All of our efforts to defeat inflation will be severely ccrprcmised if we experience continued shocks from sharp increases in oil prices. Price controls on domestic energy supplies were a signiricant factor behind our excess reliance cn imported oil- Price controls encouraged the wasteful use of energy and discouraged the development of domestic energy sources. As a result, oil imports increased iron aoout 2.2 million barrels a day in 19o7 tc a peak of 3-5 million barrels a day in 1977. In order to reverse this trend, to encourage conservation and stimulate domestic production, the Administration has oegun phased decontrol of domestic oil ar.d gas prices. Higher energy prices have already begun to reduce energy consumption dramatically. Since -1973, the rise in per capita use cf energy has slowed substantially- Had the trend of the 6 years prior to 1973 continued, oil imports in 1978 would have been nearly b million barrels a day higher than they were. In 197i, efforts by Americans to conserve energy accelerated- Consumption cf gasoline in the fourth quarter of last year, for example, was 10 percent below a year earlier. Decontrol is an essential Fact, but only cne part, of our program to stimulate conservation and encourage domestic production of energy. Other conservation efforts, as well as Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 29 programs to develop conventional energy sources, renewable energy resources ard synthetic fuels, ai€ also urgently needed. We have proposed two important pieces of legislation that would promote domestic energy production. The first of taese, the Energy Security Corporation, would facilitate private sector development of synthetic fuels to substitute for imported oil. The second, the Energy Mobilization Board, would help tc reduce the regulatory delay involved ir. building new energy facilities. It is essential that Congress complete action expeditiously on both of these proposals. Legislation will soon be sent to the Congress setting targets for reduced oil use by electric utilities- To enable utilities to meet these goals, financial assistance will be proposed to facilitate their conversion tc coal. There will also be submitted to Congress a standby gasoline rationing plan waicn could be put into place quickly m case of a severe energy six crtgage. The U.S. is working with other oil importing nations, througn the International Energy Agreement, to coordinate import policies to avert a costly scramble for oil when supplies are short. In 1977, the U.S. used 8.5 mmb/d of imported oil. President Carter set a limit of 3.2 mmb/d for U.S. oil imports during 1979 and this goal has been continued for 1980. If discussions in the IEA produce a fair and equitable agreement for sharing import ed to lower the 1980 target. reductions, the President is prepar Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 30 Aq cicultura 1 Policy Periodic scarcities of food have often occasioned an acceleration of inflation. Ihe history cf the past 15 years indicates clearly that price shocks stemming from temporary scarcities of food or ener g y can nave a lasting effect on inflation, because they tend to become built into the structure cf wages and other costs and thus into the underlying inflation ra te. Prior to 1972, agricultural policy had concer.tr a ted on supporting prices and controlling excess supply througa production adjustments. The Food and Agricultural Act cr 1v77 established a system of farmer-owned reserves designed to protect both producers and consumers against volatile feed prices, while promoting intensive use of U.S. agricultural productive capacity. The reserve system has been successful during its short existence. Grain prices began tc rise during the spring cf 1979 when export demand was projected to rise sharply. This increase was moderated, and an inflationary spurt in food prices avoided, by a substantial release of stocks from the reserve. when grain shipments to the Soviet Union were suspended in response to that country’s invasion of Afghanistan, increased incentives to place grain in reserve served as an important line of defense tc protect farmers against a precipitous decline in prices. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 1 Hospital Cost Containment Inflation mast also be attacked directly in the healta care sector. The costs of medical care have teen rising faster than prices of all other consumer goods and services fcr a numcer of years. Tne costs of hospital care have risen even faster than the rise in costs of other health care services. These costs affect consumers both directly and through the higher taxes needed to pay for public health services. Aggregate demand policies aave very little effect in this sector of the economy. Furthermore, we cannot expect market forces to work effectively in this sector- Often buyers cr sellers of medical services lack the incentive or information necessary to take actions that would limit the rise in medical costs to the levels that would exist ir. a competitive marxet. The Administration therefore, will continue tc urge enactment of its important initiatives to restrain unnecessary spending and help contain hospital costs. Passage cf the Administration’s hospital cost containment legislation is one of the most important steps Congress can take new tc fight inflation. Improving Productivity The disappointing performance of productivity has been an important factor behind the inflation of the last few years. In the early 1960’s, productivity gains aver aged more than 3 percent per year. In recent years, productivity increases have dwindled to about 1 percent, and a sizable decline occurred in 197S. Improvement in productivity growth would obviously have highly beneficial effects. Besides re ducing the rise cf costs and prices, increased productivity would mean higher real cutput Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 32 and improved living standards for Americans. Homer, bettering cur productivity performance cannot te achieved quickly or at low cost. Indeed, since we do not fully understand the causes of toe slowdown in productivity, we are hampered in cur effects tc deal with it. We do know, however, that basic research . and development and a stronger pace of business investment in new plant and equipment are indispensable ingredients for increased eccncmic efficiency. Increased investment will enhance the productivity of workers in two ways: first, by giving them mere capital tc week wita; second, and perhaps more importantly, by putting the latest technological advances into practice. The budget for 1981, as noted earlier, contains additional funds for basic research and develcpment, continuing the streng Federal backing for basic research that began in fiscal 1278. The budget does not contain new tax incentives for investment. Seductions of significant magnitude in business taxation would have been inconsistent with the basic policy of fiscal restraint that characterizes this budget. lax incentives will net result .. in increased investment unless investors can te confident that we will have a strong and stable economy. A lean budget geared to reducing inflation is the most important step we can take now to stimulate investment. Furthermore, as explained in the Economic Report, higher national savings and capital formation will not be compatible with large budgetary deficits over the longer term. In the years immediately ahead, tax reduction will become possible if the Administration and the Congress werx together tc hold the line on growth in Federal spending. Shen that time Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 33 comes, the Administration will give very high priority to tax changes that will stimulate ot investment and direct a larger fraction of our national resources to capital formation. £ealine with Structural Unemploymen t Investment in human capital is as important tc enhancement of productivity as investment in physical assets. At the present time our nation is wasting a significant part ot our human resources. Unemployment among olacxs and minorities is still unacceptably high. py improving employment opportunities for these groups, the supply of goods and services will he increased and efficiency in resource use will be improved. Seducing unemployment and increasing the earnings cf these groups cannot be accomplrsaed merely by stimulating the economy. Attempting to do so would aud to inflation while yielding, at test, mininal benefits to those suffering special employment problems. Instead we must have targeted programs to enable these groups to expand their skills and give them the opportunity tc wo rk. This Administration has already increased expenditures cn employment and training programs tor the disadvantaged by 73*, and spending on special programs for youth three-fcld. Ihe most significant new domestic initiative the President is sending the Congress this year deals with the problem of teenage unemployment- As discussed earlier, this program will emphasize improved classroom provision of basic skills and useful work experience for low achieving youth still in school; disadvantaged cut-of-school youth will be given such skills through redesigned and improved training and employment programs Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 34 The Administration's welfare reform proposals also contain important initiatives for improving the employment and wages of principal wage earners in low-income families with children. Xn the years ahead, efforts to promote productive employment for the structurally unemployed must continue. We are learning from experience which programs provide lasting benefits to workers while avoiding waste and unnecessary expenditures of public funds, we will strongly emphasize, as we have with several of the new programs developed recently, the active involvement of the private sector in hiring and training the disadvantaged. Regulatory Reform Unnecessary and sometimes counterproductive government regulation has added to inflation. Recognizing this, the President, working with the Congress, has started to dismantle economic regulations that contribute to inflation. The first step was the deregulation of the airline industry. The Administration is now working with the Congress to elimi costly and inefficient aspects of regulation in the trucking, railroad, and communications industries. We are also proposing the reform of regulations over financial institutions to promote equity for small savers, maintain the viability of our thrift institutions, and enhance competition and efficiency in financia. markets. . . i hh «?afetv» and other social In fulfilling environmental, health, sarecy, objectives, governmental regulations serve a function be performed by the market place. In these areas, important savings are possible by improving the design of individual Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 35 regulations, setting standards that will meet objectives without being unnecessarily stringent, and encouraging the most cost- effective approach to meeting those standards- The Administration has taken steps of fundamental importance to the long-run impact of social regulations on costs, productivity, and inflation. Executive Order 12044 established a regulatory analysis review procedure that requires policymakers in regulatory agencies to give greater attention to the cost of regulations- A Regulatory Council has also been established to help achieve better coordination cf important regulations issued by the various executive brar.ca and independent agencies, and to develop a calendar of important regulations that will provide a tread overview of the potential impact cf regulations on tae economy- Horeover, the regulatory analysis procedure undertaxen under Executive Order 12044 would be made permanent, and extended to the independent regulatory agencies, by the regulatory reform legislation that the Administration has sent to the Congress. Frcmpt passage of that legislation is a high priority in the Administration’s legislative agenda for 1580- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 36 IV. U.S. International Economic Policy Our fight against inflation must include international as well as domestic policy initiatives. A stable dollar is essential to avoid additional inflationary pressures. A fair and open system of international trade and investment promotes competition within our own economy. Food and commodity prices can be stabilized through internetional action. Intensive cooperation with both industrialized and developing countries can help to promote our economic objectives in today’s interdependent- world economy. The U.S. economy is inextricably linked to the other industrial economies, and is increasingly affected by the developing nations as well. We depend on the world economy: — to purchase the production from 1 in 7 U.S. manufacturing jobs and 1 in 3 acres of U.S. farmland; — to provide almost 1 in 3 dollars of U.S. corporate profits; — to provide one-fifth of our total energy requirements; — to assure a wide variety of consumer choice, promote efficient production at home, and stimulate competition in our markets; to supply essential inputs for U.S. industries, including more than one-fourth of U.S. consumption of 12 of the 15 key industrial raw materials. U.S. economic policy must therefore be developed in full recognition of the linkages between our own economy and the rest of the world Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 37 A strong, stable dollar is fundamental to the stability of both our own economy and the international financial system. Changes in the value of the dollar have an important effect on jobs, investment, inflation and growth at home. Maintaining a stable dollar is particularly important in our fight against inflation, because a strong dollar holds down the price of imports and promotes domestic competition. During the period of exchange market instability in the autumn of 1978 the United States took strong measures, including monetary actions and the mobilization of adeouate resources for forceful intervention in exchange markets. The effectiveness of those measures has been enhanced recently by continued monetary discipline and strengthened cooperation between U.S. monetary authorities and those in other major nations. The emphasis of our economic policy on eliminating inflation and reducing our dependence on imported oil will make an essential contribution toward maintaining a sound and stable dollar. A sound dollar is aided by a stable international monetary system, the goal of the International Monetary Fund. The IMF promotes the adoption and maintenance of appropriate economic policies by member countries, both those in balance of payments surplus and deficit. The IMF also maintains multilateral surveillance over the world financial system as a whole. In addition, the U.S. has itself borrowed from the Fund during the past year to augment the resources available for exchange market intervention. The Fund thus provides direct support for fundamental U.S. interests, and is an integral part of our overall economic policy strategy. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 38 A stable monetary system is important not only in its own right, but because it helps to preserve and strengthen the rospects for open and fair international trade and investment, which are vital for our economic interests. American industry and agriculture must expand their exports aggressively if we are to have a stable dollar, and American consumers must have access to competitive foreign products if we are to check inflation. To foster open and fair trade,, U.S. policy must continue to seek the freest possible international market. The Multilateral Trade Agreements signed in December 1979 set the stage for significant reduction or elimination of both tariff and non­ tariff trade barriers in all key trading nations. More than ever before, U.S. business must look to export market as a means of increasing production, providing jobs, and paying for essential U.S. imports. As both a major producer and consumer of raw materials, the United States also has an important interest in international commodity markets, we seek to mitigate the effects of commodity price instability through international commodity agreements. Properly constructed arrangements can provide benefits to both producers and consumers by reducing inflationary pressures, promoting greater stability of commodity export earnings, and increasing incentives for primary commodity production. The recently negotiated Natural Rubber Agreement provides an excellent example of an international commodity arrangement which balances producer and consumer interests to their mutual benefit. Finally, our national dependence on the world economy requires us to cooperate closely with both industrialized and developing nations across a whole range of international economic Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 39 issues. Economic summit meetings, the I.MF, GATT, and OECD are simply a few of the institutions through which we carry out such cooperation. The multilateral development banks — the World Sank and the similar regional institutions —— are the centerpiece of international efforts to mobilize resources to aid developing countries. Our fundamental national interests reauire a reasonable program of foreign assistance, and participation in the multilateral development banks is a particularly cost- effective approach to development cooperation. For example, the World Sank has lent S50 for every SI which we have paid into it. The development banks are efficient instruments of development cooperation. During their 35-year history, developing country growth has considerably exceeded their historical experience or reasonable expectation. Part of the credit for this growth must go to the catalytic effect Or external assistance flows, including those from the banks. Positive support for these institutions enhances the likelihood of constructive LDC cooperation in other global institutions which are addressing problems of key importance to the United States. Each of these individual initiatives forms part of a comprehensive and cohesive U.S. international economic strategy, which supports stable prices and increased employment at home. We can ensure that other countries respond to our vital concerns only if we also respond to their interests. Our own domestic economy can prosper at home only if we maintain, and indeed intensify, our joint efforts with other countries to improve the collective management of the world economy. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 40 V. Conclusion In sum, the 1981 budget is a key element of the Administration’s comprehensive program for containing and reducing inflation. This budget attacks inflation in two ways: first, through overall fiscal discipline? second by - emphasizing programs which ensure our national security and.: lay the foundation for a more efficient and productive economy. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis FOR RELEASE ON DELIVERY EXPECTED AT 9:30 A.M. WEDNESDAY, JANUARY 30, 1980 STATEMENT OF JAMES T. McINTYRE, JR. DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET and G. william MILLER SECRETARY OF THE TREASURY and CHARLES L. SCHULTZE CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS BEFORE THE SENATE COMMITTEE ON THE BUDGET Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I. Economic Program ana the Outlook The 197Q‘s were a decade of economic turmoil. The price of Oil rose tore than tenfold. The world's cost of importing oil swelled from less than $25 billion at the beginning of the decade to almost $300 billion at the end. In the middle of tae decade the world experienced the largest recession of the past forty years. Inflation averaged much higaer than in the prior t.o decades; inflationary expectations became embedded in tae consciousness of consumers and businesses; and the decade closed with inflation running in double-digit figures. Finally, the pace of productivity, upon which the advance of our real income and living standards ultimately depends, slowed sharply. As we enter the 1930's, economic policy has tc concentrate cn three major priorities: — controlling and then reducing inflation, — adjusting to a world cf higher energy prices, and reducing our dangerous dependence on foreign oil; — improving the structure and functioning of the American economy so as to restore a healthy growth in productivity and real incomes- while the problems and challenges that confront economic policy are difficult ones, it is reassuring to recall that tae American economy has made substantial progress on many fronts durinq the past several years- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 Output and Employment During the Expansion Three years ago our economy was suffering from very aigh unemployment and idle plant capacity. Recovery from the severe recession of 1974-75 was still far from complete. Bajoc progress has been made during the past three years in bringing tne Nation’s nuiran and capital resources bacx into production. Real output is almost 12 percent anove its level 3 years earlier. Adjusted for inflation, atter-tax income per capita has increased 7-1/2 percent. Increased use cf plant capacity was accompanied by a heartening rise of business investment in tne new plant and equipment we need fcr future growth of output and better productivity performance. Gams in employment over these past three years 4. 1 trillion now jobs in 1977 ; 3.0 million in 1v73, and 2.1 million mote m 1979 — have been phenomenal. Employment growth in recent years has no parallel in the postwar period. Two particular features of the employment expansion have been particularly encouraging. First, job creation has been concentrated in the private sector. Employment at private nonrarm establishments climbed 14 percent over the past three years, waile state and local government employment increased 4 percent and Federal employment was essentially level. Second, employment gains have been largest for those groups most in need of jobs. For every 100 black adults holding a job in late 1976, there are now 115 gainfully employed. Fcr every 100 blacx teenagers at work then, 115 are at work now. For every 100 Hispanics with jobs three years ago, there are now 120. As idle resources were increasingly put to work, it became necessary to shift policy towards restraint in order to moderate Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 economic growth- We reached that point over a year ago, when accelerating inflation also required greater fiscal and monetary discipline. The pace of economic expansion in 1979 slowed more than expected, however, largely because of the heavy blow to the economy from rising OPEC oil prices. The economic effect of aiqaei oil prices on the economy is similar to that of an excise tax. Because prices are increased, real purchasing power of consumers is drained away- The higaer revenues or OPEC oii producers and domestic oil companies are only gradually spent on additional imports and investment projects. The economy suffers a net reduction in demand and output. The Council of Economic Advisers estimates that the net drag or* the economy imposed by last year’s rising oil prices was eguivaler.t, by tae fourth quarter, .to a tax increase of" a53 billion, far larger than the tax relief provided by tne Revenue Act of 197b. Of course the increase in the price cf imported oil was unlixe ar. excise tax in one crucial respect: it extracted real weaita crom our economy, an effect not reversible by domestic tax reductions or spending Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 4 - Table- 1 Growth of Major Components or Heal GNP (Fourth Quarter to Fourth Quarter) (Percent Change) 1978 1979 4.8 0.8 Real GS 4.5 1. 0 Personal Consumption expenditures 10.5 ' 1.7 Eusiness Fixed Investment..•••••• -8.3 Residential Construction..................... 2/ Government Purchases of Goods and 1.7 0. 1 SeLvices. 4.3 0.9 Domestic Final Sales.. Change as a Percent of Beal GNP 1978 1979 0. o Inventory Accumulation 0. 5 Net exports................... 2/ - ess tnan .05. J The drain of purchasing power was so large that the total after-tax income of consumers, adjusted for inflation, remained unchanged over the four quarters of last year. Since consumers were willing to reduce their rate of saving substantially, however, consumption expenditures in real terms continued to increase, but more slowly than in 197a. Otner major categories cf demand also weakened in 1979. The rise of business capital spending also slowed, and residential construction declined. Businesses curtailed their orders and production to nee? inventories in balance with slowing sales; consequently, the rate of inventory accumulation at the and or 1979 was below the year earlier level. Set exports of goods and services rose in 1979, however, as the volume of exports rose substantially more than the volume of imports. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 Although, as sho wn in Tao le 1, real output rose less than 1 percent during 1979, employment continued to increase strongly. Demand for laocr was sustained by a sharp decline in productivity that aggravated inflation and put a squeeze on the profit margins of most American businesses outside of oil companies. The profit share of total output originating in nonfinancial corporate businesses other than petroleum and coal companies fcxl 15 percent during the first 3 guarters of last year. Declining profit margins, a gradual increase in excess capacity, and concerns about the possibility of recession contributed to the substantial slowdown in the pace of business capital formation last year. Business purchases of cars and trucks declined sharply. Since the growth of real GIi£ slowed even more than the rise in business fixed investment, the snare cf total real output devoted tc business outlays for new plant and equipment was a little higher last year than in 1978. hut the proportion of our national output devoted tc increasing and modernizing our capital stock is well below that cf most otner major industrial countries. It is also below the amount required to assure long-run improvement in productivity ana tc meet increased needs for energy and the requirements of environmental, health, and safety regulations. Inflation Developments on the inflation front were the most significant disappointment in the 1979 economic performance. At tae beginning of the year, it was widely expected that inflation would moderate. Those hopes were destroyed, however, by skyrocketing energy prices Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 Last year, the consumer price ir.dex rose by ever 13 percent. Within the index, energy prices rose by 37.4 percent. Had energy prices risen at the previous year’s rate of 8-0%, the CPI would have increased by 2-1/2 percentage points less, considering only the direct effects of energy prices an the index. Sharply rising costs of home purchase and finance alsc added a large element to CPI inflation. Ihe way the CPI treats tne cost of purchasing a home, and the associated costs of heme financing, tends to overstate the rise in the cost of living to the averaae consumer when home prices and mortgage interest rates increase rapidly. Eeginning with the December CPI, the Eureau of Labor Statistics has begun to release data that provide additional perspective on changes m consumer prices. For example, tne Department has calculated the cost cf heme cwnership in a way that makes it roughly eguivalent to rent. If this rent index is substituted for the aomeewnership and finance component cf the CPI, the rise in consumer prices last year is found to be 10.8 percent. And when energy is removed, the alternative index rises only about 3.0 percentage points in 1579, the same as in 1978. The President’s program of voluntary standards for pay and price incresaes could not prevent the rise in OPEC oil prices or the increases in housing and aome finance costs. Eut they were instrumental in keeping the rising inflation in those areas from setting oft a major acceleration of price and wage increases elsewhere. Compliance with the program was widespread- Altaougn the overall rate of inflation rose tc 13 percent, increases in wages and fringe benefits were nc higher than in 1978. The rise in prices of goods and services outside of energy, housing and Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7 home finance was less than the rise in the unit costs of production, and as pointed out earlier, very little greater than in 1978- Had the huge increase in energy prices spilled over into the bread structure of industrial wages and prices, cur basic inflation problem would have worsened for many years to core. Bay the Economy A vo ided Secession _in 1 9 7 9 Ihe economy's resilience in the face of dramatic increases in oil prices and the attendant worsening of inflation was one ot the more surprising features of economic developments in 197.. Forecasts cf impending recession were becoming frequent by late 1978, long before the magnitude of the 1 979 rise m C£?EC oil prices.was perceived. 3y the middle of 1979, they were common. Yet, the characteristics of cumulating recession are still not in evidence at the present time. The reasons why the economy was able to absorb the shocks of rising oil prices, a substantial acceleration or inflation ana sharply rising interest rates without going into a steep decline are only partially understood. Three factors, however# have played a role- First, individuals as consumers and homebuyers appear to be more strongly affected by inflationary expectations now tuan m the past. Such expectations help account for the further decline in the personal saving rate during 1979# and fcr tne continued strength of housing sales until late last year# despite a rise or mortgage interest rates to unprecedented heights. Second, monetary restraint no longer produces the abrupt changes in availability of credit tc borrowers that used to bring Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis a an end to economic expansion. A number of changes have taken place in financial markets during recent years that have removed cr reduced the constraints which used tc limit access tc credit by some borrowers during periods cf general credit restraint. The most recent of these — the intrcduction in mid-1978 cf money market certificates of deposit sold by banks and thrift institutions — has been a major factor sustaining credit flews tc housing, because of these developments in financial markets/ monetary policy now works more through changes in interest rates that affect a borrower’s willingness to incur debt, and less through changes in his ability to obtain credit. fcr this reason, monetary restraint now tends to affect aggregate demand less abruptly and with a less uneven impact across major economic sectors. As events in financial maikets late last year attest/ however, significant changes in monetary policy may still lead co constraints on the availability ox credit, particularly for housing- Third, the continued growta of the economy last year reflects the relative absence of cyclical imbalances characteristic cf earlier periods of economic expansion- Most notable in this regard is the fact that inventories have remained in good balance with sales throughout the expansion. When consumer spending declined in the second quarter of last year, therefore, businesses did not find themselves seriously overstocked. To be sure, auto inventories, particularly for large cars, increased sutstantially, and major auto producers are still trying to redress the balance between stocks and sales. In other industries, however, production cutbacks to reduce excess stoexs remained modest in 1979 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 Economic 0 utlook Ihe unsettled state of world oil markets and the unexpected resilience of the economy last year makes forecasting in 1930 an unusually hazardous exercise. The factors that sustained growth in 1979 will continue to affect economic performance in 1980. Eut it is unlikely that they will cushion the economy's response to shocks to the same extent taat they did in 1979- I; Key elements of the economic forecast underlying the fisca1 year 1931 Eudget are shown in Table 2 below. Table 2 Key Elements of the Administraticn*s Economic horecast 1930 1*31 Seal GN? Growth (Q4/Q4, Percent)........................................ -1.0 x. 3 Unemployment Rate (Q4, Percent)- 7.5 7. J Increase in the CPI (Oec./Dec., Percent)..................... 10.4 3.6 Over the four guarters of 1980, real GNE is rorecast to decline by 1 percent; in 1981, an increase cf 2.8 percent is expected, as indicated in the table. This forecast is broadly m line with many others, including that of the Congressional Eudget Cffico. The decline in real GNP this year is expected to te accompanied by an increase in the unemployment rate to about 7-1/2 percent in late 1980. Resumption of economic expansion next year, however, is expected tc bring unemployment down to 7-1/4 percent by tae end of 1931. The forecast assumes that the economy will head into a mild recession in the first half of this year. Housing starts turned down in tae fourth guarter of last year and may decline somewhat Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 10 further. New car sales also fell, and auto companies have curtailed their production schedules for the first quarter of 1980 to reduce abnormally large inventories, especially of large, fuel-inefficient models. The downward pressure on consumers* real incomes, resulting from rising oil prices and increasing marginal tax rates caused by inflation, is continuing. flith the personal saving rate already at exceptionally low levels, slow growth or real income is lixely to mean sluggish consumer markets. Current indicators suggest, moreover, that real business fixed capital spending will turn down moderately in 1980. As final demand weaxens, the rate of inventory accumulation may also fall somewhat further. If a recession does occur early this year, it is likely to be brief, mild and largely over by mid-year. A large cutback in production to reduce inventories has often magnified recessionary forces in the past. Such a development is unlixely this year because the cautious inventory policies followed most business firms have prevented a large buildup of undesired stoexs. Interest rates are likely to decline because of the abatement of credit demands in a weakening economy- This would permit housing starts to turn up in response to strong underlying demands. The rise in consumer prices is expected tc slew somewhat this year to about 10-1/2 percent. This moderation of inflation during the course of 1980 will contribute tc strengthening consumer purchasing power. Early this year, we will continue to face the shock effects of the latest round of CBEC oil price increases. Once those effects wear eff, the rise in energy prices is expected to moderate. Moreover, in a weak economy, cost increases will be more difficult to pass through to product Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 11 prices. Mortgage interest rates may also come down from their very high present levels. Next yeart a further reduction Ok inflation tc around 8-1/2 percent is forecast. Ey any historical yardstick, however, inflation next year will still te extraordinarily higa- The progress against inflation we expect, and which we sorely need, would not be achieved ir last year’s sharp increase in energy prices and the costs of home purchase and finance were to spill over into wages, costs, and the broad range of industrial and service prices. Preventing that from happening is tae first priority for economic policy in our country in 1980. The problem is not ours alone. Every oil importing country around the world is racing starkly higher energy prices and a potentially dangerous acceleration of inflaticn. So one can be satisfied with an economic cutloox fcr this year that implies declining real cutput, rising unemployment, and continuing very high inflation. Appropriate economic policies car help tae economy adjust to the impact of recent CrZC oil price increases. But no policies can change the realities which these increases impose. Economic policy at the present time must held firm against inflation, despite the prospect cf a weakening economy. xae Administration recognizes, however, that fiscal policies cannot te set or. ar. unswerving course regardless of how economic developments unfold. Be will monitor developments closely this year. Ir economic conditions and prospects deteriorate significantly, we will be prepared to take corrective action in ways and under circumstances that do not aggravate inflation. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 12 II. The 1931 Budget ar.d Fiscal Policy The fiscal policy in the 1981 budget recognizes that inflation remains our paramount eccnoiric problem. If we do not deal effectively with inflation, the very substantial economic progress achieved under this Administration will be reversed, and cur long-term goals of balanced growth with full employment and price stability will be even more difficult tc achieve. Ihe 1981 budget is, therefore, a restrictive budget- Ihe growtn of budget outlays is held to the lowest rate consistent with our national security and energy security objectives and the most urgent domestic requirements. Budget increases for less critical needs have been rejected. There are no major tax reductions. This austere budgetary policy is a necessary condition for controlling inflation. Feasons for Fiscal Bestraint A restrained budget is necessary to lower inflationary expectations. There have recently been disquieting signs that consumers expect high inflation to continue indefinitely, as a permanent fixture of economic lire. Borkers and businesses increasingly appear to make their wage and price decisions on the basis of that expectation. Such expectations could become sen- fulfilling, leading to a dangerous wage-price spiral waich would do permanent damage to the economy. The public must be convinced that this will not happen, and make their price, wage, borrowing and expenditure decisions accordingly. Budget restraint is also necessary because forecasts are nd there are risks to any policy. Unaer highly uncertain, a Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 13 present circumstances, the risks cf a restrained fiscal policy are fai. less than tne risks of fiscal stimulus. Expansive policies are difficult to reverse, and the long-term inflationary damage resulting from a mistakenly expansive policy would be severe. Or. the other hand, if economic conditions should significantly worsen, changing to a policy cf less restraint would be less difficult. A restrained, budge t is also necessary tc preserve tne international confidence in the dollar reguired to prevent destabilizing and inflationary exchange rate changes. A bloated 19S1 budget would be a signal to the world that the United States has accepted double-digit inflation and is unwilling to make tne sacrifices needed to restore price stability. This could be damaging not only for the U.S., but for the world trading and financial system, as well. For the longer-term, budgetary restraint is reguired to generate the savings and capital rormation reguired ter aigher productivity growth, lower inflation, and rising employment and living standards. Federal spending must be held down to make resources available for additional capital formation, and this will be especially difficult at a time when demands on tne budget frem energy and national security reguirements are growing. Eecause of the difficulties in controlling expenditures in tae in the short-term, this long-term problem must te addressed now, 1981 budget. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 4 Restraint in the 1931 gadget Thia budget recommends outlays fcr 1981 of S615-8 billion. This is effectively a zero-growth cudget; after allowing fcr inflation, 1961 outlays are at virtually the same level as 1530. Receipts are estimated at 3600.0 billion, and the recommended deficit is $15.9 billion, the lowest in seven years. Because cf the urgent necessity for fiscal restraint, tax reductions are not proposed. The only major tax proposal included in the fcudget is the windfall profit tax. Table 3 THE BUDGET TOTALS (in billions cf dollars) 19 79 __________Estimated_________ actual i960 1961 1962 1963 Pudoet receipts....... ub5. 5 523. 5 bOC.O 691. 1 799.6 Budget outlays........ 493. 7 5o3-b 615.9 686- 3 774. 3 Surplus or dericit (-) -27.7 -35.6 -15.6 ♦ 4.8 ♦ 24. 5 budget authority--.. 5 5o . 7 654. 0 696- 1 7 75. 1 6o6. 5 It is regrettable that present difficult economic conditions do not permit a balanced 1961 budget. However, the propcsec 1*61 deficit marks substantial progress toward that goal. The deficit proposed for 1961 is $50 billion lower than when President Carter ran for President. As a percentage cf the budget and or the GNP, the proposed deficit is the second lowest of the preceding decade, and less than a third of the average for the 1970’s. If, contrary to our expectation, tae economy were to expand rapidly encugh to keep the unemployment rate at its current level, tae 1951 budget would be in surplus by arout 315 billion. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 15 A common measure of fiscal stimulus or restraint is the change in the high-employment budget surplus or deficit, a measure which excludes the budgetary effects of changes in the degree of resource utilization. This measure of fiscal restraint increases from a SI 2 billion deficit during fiscal year 1975 to a surplus of 5b billion in 1330 -and a surplus of 557 billion in 1981. The 19o1 budget thus continues -- and intensifies — tae policy of fiscal restraint oegun earlier. The increase in the high employment surplus from 1979 to 1931 is over 1-3/4 percent cr GH? -- a very substantial degree of restraint. Budgetary stringency can also be measured by examining proposed budget outlays in comparison with current services, tae level or spending required to maintain existing program, levels. The level of outlays in FY 1981 is only 0.6T above the level needed to maintain the current level of services. Toe 55.7 billion difference is more than accounted for by 5b.3 billicxi of increased spending on defense and energy, which are critical tc our national security. The rest of the budget saews a reduction cf 52.5 billion belcw current services. 3ecause the 1931 budget is restrictive, the pressures tc expand it will be strong. Unemployment later in 1980 and in 1^81 is expected to ce higher than it is today. Businesses will need greater incentives to invest in plant and equipment. Wcrthwaile social programs will seem to require additional funding. 3any of these needs are legitimate, and under other circumstances they might deserve room in the budget. Eut the harsh reality cf inflation makes it critical for the Congress tc resist those pressures, as the Administration has done Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 16 fla joe cadaet Priorities The budget is more than an instrument cf macroeconomic policy. It is also a means of addressing the needs of our society and the ordering of national priorities. Althouga spending growth has been held to a minimum in this budget, tne President has recommended program increases in a few critical areas. Tae most important of these in 1981 are defense, energy, basic research, and the development cf cur young people. Defense.--when the Administration assumed office, reax defense spending had declined for almost a decade. Even in 1978, outlays ror defense largely reflected decisions of the previous Administration. In real terms, these outlays were lower than they had been four years earlier. In the 1979 budget, the President proposed a long term policy of substantial and sustained growth in real defense spending. Developments in Iran and Afghanistan during recent months attest to tais need. Therefore, this budget proposes a defense program in lsdi of $153.2 billion in budget authority, an increase of over 5% in real terms. Outlays for defense will be $142.7 billion, a real increase of over 3S- with this budget, spending on defense will have incieased by 9.4% in real terms since 1979. This Administration is committed as a matter of fundamental pcxicy to continued large real increases in defense spending beyond 1931. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 17 Energy.—Solutions to our energy problem are essential for both economic pcogress and national security. This cudget reflects the important progress being made by tais Administration, in cooperation with the Congress, through a bread and practical program addressing the energy problems the Nation is facing in this new decade. The 1981 budget assumes that, early in the 1930 session, the Congress will pass the crucial treasures proposed last year: the windfall profit tax, the Energy Security Corporation, the conservation measures ar.d the Energy Mobilization Doard. The energy program supported in the 1991 Eudget is comprehensive and balanced, addressing both production and conservation. To stimulate production, it recommends resources for the Energy Security Corporation that would help tc create a synthetic fuels industry, and it supports major increases for solar, fossil, and fusion energy. It provides for an ambitious gasohol program and emphasizes safety and the solving of current problems in nuclear fission programs. Overall, spending on energy programs will increase tc 39.1 billion in 1991, an increase of over 90% during the first feur years cf this Administration. As the Nation adjusts to energy scarcity, we must protect those who are most vulnerable, Much of this protection is achieved automatically, through programs such as social security and retirement which are indexed to the ccst cf living. The 1^91 budget expands this protection, providing funds for the poor lor weatherization of their homes, and for energy cash and crisis assistance. In all, the 1991 budget proposes $2.h billion in Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 1b - energy assistance for the disadvantaged, an increase of 50* ov«r the 1960 level. youth Employment.—Despite the economic gains that have been made over the past three years, youth unemployment, especially for minorities, remains distressingly high- When youth have significant employment problems upon leaving school, their employment and earnings may be adversely atfected for a liretime. To eliminate this waste of natiorai resources, this budget proposes a major new education and employment initiative designed to prepare today’s youth for the labor market of the 1980’s. This program will help schools tc - provide disadvantaged youtn with the basic skills needed to get and keep jobs, and to reinforce those skills with job experience in the private sector. Disadvantaged youth out of school would acquire these basic skills in improved training and employment programs- fcy 1982 this program will add 52 billion to the over 54 billion currently being spent on education and employment programs fcr 14 tc a1 year old disadvantaged youth- easic Research.—Between 1966 and 1975, Federal spending for basic research, measured in constant dollars, declined substantially. In order to maintain our Nation’s position ao a leader in the development of new technology, the budgets of this Administration have increased real spending on basic research each year. The 1991 budget continues this policy and provides for major and sustained increases above toe rate of inflaticn for all research and development programs- obligations fcr research and development will increase by 135; tae basic research by 1x5. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 19 Since 197b, obligations for basic research will have increased by UOS, or 9* in real terms. Agricu1tare.——3ecause of the aggression cf the Soviet Union against Afghanistan, the President has significantly limited Soviet grain purchases from the United States, while at tne same time taking steps to ensure that the fcurden cf the expert limitation does not fall disproportionately cn farmers. Specifically, the Secretary of Agriculture will: —- Purchase frcm shippers contracts entered into with the Soviet Union and sell the contracts tack intc expert markets only at prices above these prevailing on January u. — If necessary, take title to the grain intended for export to the Soviet Union and isolate it from the market. __ Purchase up to 4 million metric tons of wheat for an international food aid reserve. — increase the loan level for feed grains and wheat by 10 and 15 cents per bushel respectively. __ Expand CCC export credit guarantee coverage to include full commercial risk. __ Modify the farmer-owned grain reserve to encourage farmers to place additional grain in their reserve. — Purchase grain in local markets to stabilize markets and relieve the congestion of grain in transit to major ports- It is estimated that these measures will increase outlays by S2-0 billion in 1980 and SO.8 billion in 1981. In addition, tae President will propose additional funding for F.L. 480 for ci The Administration 1980 and FY 1981 of S100 million per year. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 20 stands ready to take further steps if these actions prove insufficient, raking care, however, to avoid long-term distortions in out basic farm policies. Initiatives to Reduce Federal Spending These initiatives of higa national priority have been proposed in the context of overall budgetary restraint. The required restraint has made it essential to propose a number of reductions in Federal programs. Restraint has been applied carefully. For the third consecutive year, zero-base budgeting has been used to establish priorities that put taxpayers’ dollars to test uso. Desirable new programs have teen deterged. Increases in existing programs have been limited. Past efforts to achieve program efficiencies and improve management are beginning to pay off, and further efforts in this direction are undertaken in this budget. Reductions in lower priority programs have been proposed, and this budget contains specific outlay reductions of 39.7 billion from current service' levels. A substantial portion or these reductions take the form of legislative proposals that would reduce Federal spending. Together, taese legislative proposals will reduce Federal spending by 35-6 billion in 1981 and by significantly larger amounts in subsequent years. Savings would be achieved througa several health-related proposals, modification of entitlement programs tc relate benefits mere closely tc need or tc earned rights, increased administrative efficiencies, and reduction or waste, fraud, and abuse. In addition, this budget contains proposals to reform Federal compensation practices and procedures, place the railroad retirement system on a solid Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 21 financial footing, and dispose of excess materials in the national stockpile of strategic materials. Large spending reductions are extraordinarily difficult tc achieve in the immediate budget year, because so much of the budget is relatively uncontrollable in the near-term. In the 1361 budget, fully 77% or outlays are classified as relatively uncontrollable, and these will account for $37 billion of the $52 billion increase in total outlays between 1930 and 1531- The remaining 315 billion will be due entirely to increased spending for national defense. The rest of the budget, in total, has oeen held at the 1930 level. For every increase in spending tor controllable, non-defense programs an offsetting reduction within ether programs has teen made. As inflation gradually comes dewn, its severe impact cn the growth of budget outlays will oe mitigated- Hut future spending levels can only be be held down by efforts begun new — in 1ao1 -- to hold the lid on spending initiatives. Receipts Total receipts tor 1981 are estimated to he SoOO.O billion, $76.2 billion more than in 1980. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 22 Table 4 ESTIMATED UNIFIED EUDGET BICEIPTS dollars) 1979 1980 1 9b 1 Individual income tax.....-.------. 217.3 238.7 274. 4 Corporation income tax--..-.-....- 65.7 72.3 7 1.6 Contributions for social insurance- 141. 6 162. 2 187.4 other receipts.• ••••••••••• — ••••• 40.8 50.6 60. 6 465.9 523. 8 6 0 0.0 To tai........ These estimates assume a windfall profit tax whica, on a r.et basis, produces excise tax receipts of $5.5 billion in 1980 and $13.5 biliicn in 1981. The windfall profit tax will ensure that the burden of higher energy costs is equitably shared, and will provide additional receipts to finance energy programs essential to our economic well-being and national security- Secause the windfall profit tax is deductible, it will reduce the corporation income tax liabilities cf cil firms. This, combined with lower growth in corporate profits due to a sluggish 1960 economy, results in a slight reduction in corporation income tax receipts in 1981. Control of Federal Credit Activities Ip recent years, direct loans and loan guarantees have come to play an increasingly important role in economic policy. Unfortunately, too much of this activity has escaped the normal discipline of the budget process. In the 1930 budget, we announced our intention to institute a system to control the use of Federal credit. This system, which is now in place, recommends specific credit limitations for most credit programs. It also provides estimates of the new direct lean obligations and Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 23 new loan guarantee commitments tc be made in the coming fiscal year. Table 5 -> THE CREDIT BUDGET TOTALS (in billions of dollars) J979 1980 1931 51. 4 59.7 60.7 New direct roan oDixgauxuuo.- 74.7 75.2 -31.4 New lean guarantee canur.i uncut a. • 126. 1 134.9 142. 1 In 1931, new direct loan ooligatior.s increase by 1.7% over 1930 compared with a 16.1% increase in the previous year. Lean guarantee commitments, on the other hand, increase 3-3% in 1981 after increasingly only a small amount in 1980. The total increase tor direct loans and loan guarantees together is 5.3% in 1931. The credit control system is an important improvement of Federal budgeting practices. The new system has three long-run goals: __ To ensure that credit programs meet the purposes for which they were intended, that they do so effectively, and that the level of resources is justified. — To provide a closer examination of the allocation of credit and real resources across broad sectors cf the economy Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 24 - To encourage more careful consideration of the impact of total Federal credit activity cn the private economy as a wnole — cn the borrowing needs of the private sector, and on economic growth, inflation and unemployment. This new system of credit control, in conjunction with zero based budgeting and multi-year planning, will help ensure that the government runs more intelligently and efficiently. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 25 HI. other Measures to Fight Inflation Budgetary restraint, of course, is not the only anti- inflationary policy at our disposal. But it is a necessary condition for the success of other policies. Fiscal discipline must be combined with responsible monetary policy to provide the economic environment necessary to reduce inflation. But more is required. Inflation has been building in our country for 15 years, and its momentum is very strong. Reducing inflation cannot be accomplished by traditional macroeconomic policies alone without enormous losses of output and jobs. Maintenance of effective standards for pay and price restraint is essential. we must also attack other structural causes of inflation, especially those related to energy and low productivity growth. Monetary Policy Policies of monetary restraint are never popular. They hit sone sectors harder than others. They are associated with shortages of credit and high interest rates, even though those developments stem principally from the forces of inflation that dictate monetary restraint, rather than from those policies themselves. However, inflation will not come down unless the growth of money and credit is gradually reduced to a rate consistent with lower inflation. The Federal Reserve has been pursuing a responsible course. Growth of the major monetary aggregates was within the established target ranges last year. When an excessive pace of monetary growth did emerge in mid-1979 the Federal Reserve took steps to deal with tne situation. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26 In the first few weeks following the Federal Seserve’s October 6 actions, there was considerable turmoil in financial markets. Interest rates rose sharply, and uncertainties were created in the minds of lenders and borrowers regarding the outlook for the cost and availacility of credit. Mortgage markets were most severely affected. Subsequently, however, interest cates on market securities began to decline. Credit has now begun to flew mere freely to mortgage borrowers, and mortgage interest rates have declined somewhat in some regions of the country. Bhile housing starts have been adversely affected, the decline has teen much less substantial than in previous cycles. Moreover, mortgage credit flows and housing construction will be sustained early this year by the temporary Federal preemption of State usury ceilings. These painful effects of monetary restraint are a price that has to oe paid to prevent the excess growth in money and credit which would aggravate inflation. Ey placing greater emphasis on the supply of bank reserves, the Federal Reserve's present operating strategy will allow more effective control ever tae growth of money and credit. Growth in virtually all of the monetary aggregates fell back to a moderate pace during tne closing months of last year, and interest rates have saewn remarkable stability recently. If the pace of economic activity slackens next year, a modest decline in interest rates should accompany reduced demand fcr credit. However, a significant and lasting decline in interest rates cannot be achieved without progress in reducing inflation. The relatively small deficit that will result from tae Administration’s 1981 budget will help to relieve pressures in Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 27 tinancial markets. Net Federal borrowing from the public will be an estimated 533 billion in FY 19d1, compared with 534 billion in FY 1979, and 544 billion in FY 1990. Private credit demands in 1980, however, are expected to decline by more than the increase in net Federal borrowing. gay and Price Policies Dealing effectively with inflation requires policies aimed directly at promoting restraint in wage and price increases m the private sector. The cooperation of business and labor in adhering tc voluntary wage and price standards is essential in this endeavor. Standards for wages and prices are not only a means of reducing inflation; to the extent that they succeed, they reduce the burden on monetary and fiscal policies in fighting inflation, and thus make increased employment and output possible. The standards have a critical role to play in 1990. Cur most immediate problem this year is tc prevent last year’s large price increases in energy and housing from spilling ever into wages, costs, and the broad range of industrial and service prices. Should that happen, inflation could worsen for many years to come. Tc promote continued cooperaticr with the standards, tne Administration and organized labor arrived at a National Accord announced on September 29, 1979. The Accord called for the creation of two advisory committees, one on pay and cne on prices. The Pay Advisory Committee consists cf representatives from labor, business and the public and has already recommended a number of modifications in the pay standard. For the tasic pay Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 28 standard, the recommendation contemplates that paj increases in normal citcunstances would average 8-1/25, with possible variation within a range of 7-1/2 to 9-1/2 percent. The Council on Wage and Price Stability is new reviewing this recommendation. Energy All ot our efforts to defeat inflation will te severely compromised if we experience continued shacks from sharp increases in oil prices. Price controls on domestic energy supplies were a significant factor behind our excess reliance cn imported oil. Price controls encouraged the wasteful use of energy and discouraged the development ot domestic energy sources. As a result, oil imports increased rrom about 2.2 million barrels a day in 19o7 tc a peak of 3.5 million barrels a day in 1977. In order to reverse this trend, to encourage conservation and stimulate domestic production, the Administration has Degun phased decontrol of domestic oil ar.d gas prices. Higher energy prices have already begun to reduce energy consumption dramatically. Since -1973, the rise in per capita use cf energy has slowed substantially. Had the trend of the 6 years prior to 1973 continued, oil imports in 1978 would have been nearly 8 million barrels a day higher than they were. In 1979, efforts by Americans to conserve energj accelerated. Consumption cf gasoline in the fourth quarter of last year, for example, was 10 percent below a year earlier. Decontrol is an essential pact, hut only one part, of our pregram to stimulate conservation and encourage domestic production of energy. Other conservation efferts, as well as Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 29 programs to develop conventional energy sources, renewable energy resources and synthetic fuels, ai€ also urgently needed. He have proposed two important pieces of legislation that would promote domestic energy production. The first of taese, the Energy Security Corporation, would facilitate private sector development of synthetic fuels to substitute for imported oil. The second, the Energy Hobilization Eoard, would help tc reduce the regulatory delay involved in building new energy facilities. It is essential that Congress complete action expeditiously cn both of these proposals. Legislation will soon be sent to the Congress setting targets for reduced oil use by electric utilities- To enable utilities to meet these goals, financial assistance will be proposed to facilitate their conversion tc coal. There will also be submitted to Congress a standby gasoline rationing plan wmcn could be put into place quickly in case of a severe energy shcrtgage. The U.S. is working with other oil importing nations, througn the International Energy Agreement, to coordinate import policies to avert a costly scramble for oil when supplies are short. In 1977, the U.S. used 8.5 mmb/d of imported oil. President Carter set a limit of 3.2 mmb/d for U.S. oil imports- during 1979 and this goal has been continued for 1980. If discussions in the IEA produce a fair and equitable agreement for sharing import reductions, the President is prepared to lower the 1980 target. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 30 Agricultural Policy Periodic scarcities of food have often occasioned an acceleration of inflation. Xhe history cf the past 15 years indicates clearly that price shocks stemming from temporary scarcities of food or energy can nave a lasting effect on inflation, because they tend to become built into the structure cf wages and other costs and thus into the underlying inflation ra te. Prior to 1972, agricultural policy had concentrated on supporting prices and controlling excess supply through production adjustments. The Food and Agricultural Act or 1a77 established a system of farmer-owned reserves designed to protect both producers and consumers against volatile feed prices, while prorating intensive use of U.S. agricultural productive capacity. The reserve system has been successful during its short existence. Grain prices began tc rise during the spring cf 1979 when export demand was projected to rise sharply. This increase was moderated, and an inflationary spurt in food prices avoided, by a substantial release of stocks from the reserve. when grain shipments to the Soviet Union were suspended in response to that country’s invasion of Afghanistan, increased incentives to place grain in reserve served as an important line of defense tc prefect farmers against a precipitous decline in prices. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 1 Hospital Cost Containment Inflaticn must also be attacked directly in the health care sector. The costs of medical care have teen rising faster than prices of all other consumer goods and services fcr a nuircer of years. The costs of hospital care have risen even faster than the rise in costs of other health care services. These costs affect consumers both directly and through the higher taxes needed to pay for public health services. Aggregate demand policies aave very little effect in this sector of the economy. Furthermore, we cannot expect market forces to work effectively in this sector. Often buyers cr sellers of medical services lack the incentive or information necessary to take actions that would limit the rise in medical costs to the levels that would exist in a competitive marxet. The Administration therefore, will continue tc urge enactment of its important initiatives to restrain unnecessary spending and help contain hospital costs. Passage cf the Administration’s hospital cost containment legislation is one of the most important steps Congress can take new tc fight inflation. Improving Productivity The disappointing performance of productivity has been an important factor behind the inflaticn of the last few years- In the early 1960’s, productivity gains averaged more than 3 percent per year. In recent years, productivity increases have dwindled to about 1 percent, and a sizable decline occurred in 197S. Improvement in productivity growth would obviously have highly beneficial effects. Besides reducing the rise cf costs and prices, increased productivity would mean higher real cutput Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 32 and improved living standards for Americans. However, bettering cur productivity performance cannot be achieved quickly or at low cost. Indeed, since we do not fully understand the causes of tne slowdown in productivity, we are hampered in cur efforts tc deal with it. We do know, however, that basic research . and development and a stronger pace of business investment in new plant and equipment are indispensable ingredients for increased economic efficiency. Increased investment will enhance the productivity of workers in two ways: first, by giving them mere capital tc work wita, second, and perhaps more importantly, by putting the latest technological advances into practice. The budget for 1981, as noted earlier, contains additional funds for basic research and devel eperent, continuing the strong Federal backing for basic research that began in fiscal 1978. The budget does not contain new tax incentives for investment. Reductions of significant magnitude in business taxation would have been inconsistent with the basic policy of fiscal restraint that characterizes this budget. Tax incentives will net result in increased investment unless investors can be confident that we will have a strong and stable economy. A lean budget geared to reducing inflation is the most important step we can take now to stimulate investment. Furthermore, as explained in the £ccnot.-ic Re port, higher national savings and capital formation will not be compatible with large budgetary deficits over the longer term. In the years immediately ahead, tax reduction will become possible if the Administration and the Congress werx together tc hold the line on growth in Federal spending. When that time Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 33 cores, the Administration will give very high priority to tax changes that will stimulate ot investment and direct a larger fraction of our national resources to capital formation- Cealine with 5tructural Unemployment Investment in human capital is as important tc enhancement of productivity as investment in physical assets. At the present time our nation is wasting a significant part ot our human resources. Unemployment among blacks and minorities is still unacceptably high. py improving employment opportunities for these groups, the supply of goods and services will te increased and efficiency in resource use will be improved. Seducing unemployment and increasing the earnings cf these groups cannot be accomplisaed merely by stimulating the economy. Attempting to do so would aod to inflation while yielding, at test, minimal benefits to those suffering special employment problems. Instead we must have targeted programs to enable these groups to expand their skills and give them the opportunity to work. This Administration has already increased expenditures on employment and training programs tor the disadvantaged by 73a, and spending on special programs fcr youth three-fold. Ihe most significant new domestic initiative the President is sending the Congress this year deals with the problem of teenage unemployment- As discussed earlier, this program will emphasize improved classroom provision of basic skills and useful work experience for low achieving youth still in school; disadvantaged cut-of-school youth will be given such skills through redesigned and improved training and employment programs. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 34 The Administration’s welfare reform proposals also contain important initiatives for improving the employment and wages of principal wage earners in low-income families with children. In the years ahead, efforts to promote productive employment for the structurally unemployed must continue. We are learning from experience which programs provide lasting benefits to workers while avoiding waste and unnecessary expenditures of public funds, we will strongly emphasize, as we have with several of the new programs developed recently, the active involvement of the private sector in hiring and training the disadvantaged. Regulatory Reform Unnecessary and sometimes counterproductive government regulation has added to inflation. Recognizing this, the President, working with the Congress, has started to dismantle economic regulations that contribute to inflation. The first step was the deregulation of the airline industry. The Administration is now working with the Congress to eliminate costly and inefficient aspects of regulation in the trucking, railroad, and communications industries, we are also proposing the reform of regulations over financial institutions to promote equity for small savers, maintain the viability of our thrift institutions, and enhance competition and efficiency in financial markets. In fulfilling environmental, health, safety, and other objectives, governmental regulations serve a function be performed by the market place. In these areas, important cost savings are possible by improving the design of individual Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 35 regulations, setting standards that will meet objectives without being unnecessarily stringent, and encouraging the most cost- effective approach to meeting those standards* The Administration has taken steps of fundamental importance to the long-run impact of social regulations on costs, productivity, and inflation. Executive Order 12044 established a regulatory analysis review procedure that requires policymakers in regulatory agencies to give greater attention to the cost of regulations. A Regulatory Council has also been established to help achieve better coordination cf important regulations issued by the various executive branca and independent agencies, and to develop a calendar of important regulations that will provide a bread overview of the potential impact cf regulations on tae economy. Horeover, the regulatory analysis procedure undertaxen under Executive Order 12044 would be made permanent, and extended to the independent regulatory agencies, by the regulatory reform legislation that the Administration has sent to the Congress. Prompt passage of that legislation is a high priority in the Administrations legislative agenda for 1 980. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 36 IV. U.S. International Economic Policy Our fight against inflation must include international as well as domestic policy initiatives. A stable dollar is essential to avoid additional inflationary pressures. A fair and open system of international trade and investment promotes competition within our own economy. Food and commodity prices can be stabilized through international action. Intensive cooperation with both industrialized and developing countries can help to promote our economic objectives in today's interdependent world economy. The U.S. economy is inextricably linked to the other industrial economies, and is increasingly affected by the developing nations as well. We depend on the world economy: to purchase the production from 1 in 7 U.S. manufacturing jobs and 1 in 3 acres of U.S. farmland; — to provide almost 1 in 3 dollars of U.S. corporate profits; —— to provide one—fifth of our total energy requirements; — to assure a wide variety of consumer choice, promote efficient production at home, and stimulate competition in our markets; — to supply essential inputs for U.S. industries, including more than one-fourth of U.S. consumption of 12 of the 15 key industrial raw materials. U.S. economic policy must therefore be developed in full recognition of the linkages between our own economy and the rest of the world. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 37 A strong, stable dollar is fundamental to the stability of both our own economy and the international financial system. Changes in the value of the dollar have an important effect on jobs, investment, inflation and growth at home. Maintaining a stable dollar is particularly important in our fight against inflation, because a strong dollar holds down the price of imports and promotes domestic competition. During the period of exchange market instability in the autumn of 1978 the United States took strong measures, including monetary actions and the mobilization of adeouate resources for forceful intervention in exchange markets. The effectiveness of those measures has been enhanced recently by continued monetary discipline and strengthened cooperation between U.S. monetary authorities and those in other major nations. xhe emphasis of our economic policy on eliminating inflation and reducing our dependence on imported oil will make an essential contribution toward maintaining a sound and stable dollar. A sound dollar is aided by a stable international monetary system, the goal of the International Monetary Fund. The IMF promotes the adoption and maintenance of appropriate economic policies by member countries, both those in balance of payments surplus and deficit. The IMF also maintains multilateral surveillance over the world financial system as a whole. In addition, the U.S. has itself borrowed from the Fund during the past year to augment the resources available for exchange market intervention. The Fund thus provides direct support for fundamental U.S. interests, and is an integral part of our overall economic policy strategy. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 38 A stable monetary system is important not only in its own right, but because it helps to preserve and strengthen the rospects for open and fair international trade and investment, which are vital for our economic interests. American industry and agriculture must expand their exports aggressively if we are to have a stable dollar, and American consumers must have access to competitive foreign products if we are to check inflation. To foster open and fair trade,, U.S. policy must continue to seek the freest possible international market. The Multilateral Trade Agreements signed in December 1979 set the stage for significant reduction or elimination of both tariff and non­ tariff trade barriers in all key trading nations. More than ever before, U.S. business must look to export market as a means of increasing production, providing jobs, and paying for essential U.S. imports. As both a major producer and consumer of raw materials, the United States also has an important interest in international commodity markets. we seek to mitigate the effects of commodity price instability through international commodity agreements. Properly constructed arrangements can provide benefits to both producers and consumers by reducing inflationary pressures, promoting greater stability of commodity export earnings, and increasing incentives for primary commodity production. The recently negotiated Natural Rubber Agreement provides an excellent example of an international commodity arrangement which balances producer and consumer interests to their mutual benefit. Finally, our national dependence on the world economy requires us to cooperate closely with both industrialized and developing nations across a whole rraannggee of international economic Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 39 issues. Economic summit meetings, the IMF, GATT, and OECD are simply a few of the institutions through which we carry out such cooperation. The multilateral development banks — the World Bank and the similar regional institutions —• are the centerpiece of international efforts to mobilize resources to aid developing countries. Our fundamental national interests reauire a reasonable program of foreign assistance, and participation in the multilateral development banks is a particularly cost- effective approach to development cooperation. For example, uhe World Bank has lent $50 for every $1 which we have paid into it. The development banks are efficient instruments of development cooperation. During their 35-year history, developing country growth has considerably exceeded their historical experience or reasonable expectation. Part of the credit for this growth must go to the catalytic effect ol external assistance flows, including those from the banks. Positive support for these institutions enhances the likelihood of constructive LDC cooperation in other global institutions which are addressing problems of key importance to the United States. Each of these individual initiatives forms part of a comprehensive and cohesive U.S. international economic strategy, which supports stable prices and increased employment at home. We can ensure that other countries respond to- our vital concerns only if we also respond to their interests. Our own domestic economy can prosper at home only if we maintain, and indeed intensify, our joint efforts with other countries to improve the collective management of the world economy. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 40 V. Conclusion In sum, the 1981 budget is a key element of the Administration’s comprehensive program for containing and reducing inflation. This budget attacks inflation in two ways: first, through overall fiscal discipline; second by emphasizing programs which . ensure our national security and lay the foundation for a more efficient and productive economy. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Date: January 7, 1980 MEMORANDUM FOR: SECRETARY MILLER From: Dick Svron, Bea Vaccara (Initialed) Initialed; Subject: Budget Testimony You are scheduled to meet with Charlie Schultze and Jim McIntyre Tuesday (1/8/80) at 10:30 a.m. to discuss this year’s budget testimony. The three of you are scheduled to testify before the Senate Budget Committee in a panel format on the morning of January 30th; you and Schultze will also testify together the morning of January 31st before the House Budget Committee. In previous years the Secretary of the Treasury has usually testified alone, so a somewhat different approach may be called for than in the past. One of the first issues to be resolved is the topics to be handled by each of you. One possible approach you may want to consider follows. Secretary Miller: Overall strategy for economic policy for 1980/81. Summary of economic outlook - importance administration places on fighting inflation. Interrelationship between energy, inflation, the economy and the dollar. Chairman Schultze: Review of economic accomplishments over the last three years. Performance of economy in 1979, details of economic forecast for 1980 and outlook for next few years. Director McIntyre: Detail of budget for 1981, spending changes for major categories and reasons for them. We will prepare a detailed outline of your testimony for your approval after you have decided on the approach you want to take. We may want to consider using several charts or other visual aids. Initiator Reviewer Reviewer Reviewer Reviewer Ex. Sec. Surname Initials /Date / / / / /j Form OS-3129 Oo^artotfit of Traawry Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

G. William Miller (1980, January 29). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19800130_miller

@misc{wtfs_speech_19800130_miller,
  author = {G. William Miller},
  title = {Speech},
  year = {1980},
  month = {Jan},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19800130_miller},
  note = {Retrieved via When the Fed Speaks corpus}
}