Speech

Department of theTREA$llRY ’ WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR PELEASE AT NCON EDT September 25, 1980 Remarks of the Honorable G. William Miller Secretary of the Treasury before the Conference Hoard New York, New York September 25, 1980 The theme of your meeting today is the outlook for 1981. In today’s circumstances it is particularly difficult to gauge the economic prospects for even one year ahead. Yet, it is a time when government policies need to be formulated not for a single year, but with a much longer viewpoint. For you, multi-year planning is natural. In government, there is a tendency to react to this morning's headline and to today's new economic statistic. Carrying out a longer-range strategy is difficult. Hut unless we can adopt, and stick to, a longer-term strategy our programs will be superficial and their successes fleeting. Cur tasks for the 1980s are clear. We must wring inflation out of our economy. We must complete our adjustment to the new energy realities that were first driven home in 1973 — as events of the last few days so vividly demonstrate. We must step up the growth of productivity and restore our competitive edge. Inflation, energy, lagging productivity are problems that have built up over a period of years. They will not yield easily or quickly. It's going to require a determined, steadfast approach. M-676 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -2- An Economy Poised for Recovery The recession of 1S80 appears to be coming to an end. I will not endeavor to pinpoint the trough or forecast the rate of expansion. Sut a wide range of statistics tells us that the worst of the decline is over. Consumer spending has risen significantly, aided by improved auto sales. Manufacturers' new orders are stronger and labor markets are beginning to stabilize. The index of leading indicators has risen sharply in the past two months. Housing starts have increased substantially. The automatic fiscal stabilizers and the self-correcting processes inherent in our economy have done their work. The economy is now poised for recovery. As measured by the CPI, inflation has abated. However, the underlying inflation rate remains dangerously high. We have no reason to relax our efforts against that menace. Unemployment also remains unacceptably high. Particular industries and areas are suffering severe dislocations. To counter this, we need a temporary extension of unemploy­ ment compensation and temporary assistance to communities severely impacted by the downturn. Eut what we do not need in our present circumstances is traditional, old-fashioned, broad-based economic stimulus. Even today a large consumption-oriented tax cut would be the wrong medicine. Instead of offsetting the downturn, it would add to demand and worsen inflation during the recovery. We do not need — we cannot afford — a tax cut that contributes little or nothing to reducing inflation or fostering increased investment. Even the talk of such action incites inflationary expecta­ tions, unsettles the financial markets and raises interest rates unnecessarily. 1980 is not 1960. Today we have to modernize not only our assembly lines but our thinking about economic policy. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -3- The Basis for Economic Progress We need to follow a course that reinforces the impending recovery with measures that are carefully targeted to the long-term problems of inflation, energy and competitiveness. The basis for such a program is already in place. The Administration has pursued a policy of fiscal restraint. Budget control isn’t easy. Much of the Federal budget is locked-in by entitlement programs that cannot be affected without legislative changes. And within the controllable portion, every program has beneficiaries who will protect it with single-minded zeal. However, we have made progress. The President introduced zero-based budgeting and made many difficult budgetary decisions. In the four budget years since 1977 the real growth of Federal spending has been held to 1.6 percent a year, well below the growth of GNP. The Administration has also been working aggressively to reduce the cost of government regulation. President Carter has relied more on market forces than any other recent President. Trucking, airlines and deposit interest rates are being deregulated. Unnecessary and outdated regulations have been abolished. New procedures have been created to assure a better balancing of the costs and benefits of regulations. And we are systematically seeking more efficient, innovative ways of achieving regulatory goals. The 1973 oil embargo should have been a signal of the need to encourage conservation and domestic energy production. Pricing energy at the world level was the single most important step that could have been taken to accomplish this. However, following the Arab embargo, the United States held domestic oil prices below the world level. In effect, we told our people that energy was cheaper than its replacement value. Dependence on OPEC went up and up. Drilling and production in the lower 48 went down and down. President Carter made the tough decision to decontrol domestic oil prices and set us on the road to less dependence on foreign energy. Now, at long last, we have an energy program that provides strong incentives for conservation and domestic production. In addition to the price incentives provided by decontrol, Congress has approved $4 billion in tax credits to stimulate energy production and conservation. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -4- Twenty billion of an eventual $88 billion has been appropriated to assist the private sector in creating a new synthetic fuels industry capable of supplying the equivalent of 2 million barrels of oil a day by 1992. And the Administration has proposed a $10 billion program to help electric utilities convert from oil to coal or other fuels and save an additional 500,000 barrels of oil a day by 1990. Domestic drilling and exploration are now at record levels, oil imports down 20 percent over three years ago and American business using less energy for each unit of output. We have also acted vigorously to assure a strong and stable dollar in foreign exchange markets. The Meed for a Decade of Investment But serious economic challenges of inflation, energy, productivity and competitiveness remain. To address these challenges, we need a decade of unparalleled growth in investment. Investment in new plant and equipment is not the only factor affecting productivity. Eut an increase in the amount and quality of the capital equipment available to each American worker is the single most important step we can take to bring about higher productivity. And faster productivity growth is a key to restoring American competitiveness and winding down inflation. From 1947 through 1965, the amount of physical capital for each person in the American civilian labor force grew by 3 percent a year. Productivity increased by 3.2 percent a year. In the years between 1965 and 1972 when growth in capital per worker slowed to 2.6 percent, productivity growth dropped to 2.3 percent. And between 1972 and 1976 when the capital-labor ratio grew only two tenths of a percent per year, productivity growth fell again -- to only eight tenths of a percent. An increase in investment means not only more but better tools for our workers. Investment is the means of bringing into use the new, more efficient technology that can restore and enhance American competitiveness. We need, and the Administration is supporting, strong research and development programs. But successful R & D will be of little avail unless we apply it in the form of new equipment in the hands of American business and labor. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -5- Increased investment, and the faster productivity growth that accompanies it, will increase real incomes and help hold down inflation. When productivity growth is slow or nonexistent, wage and salary increases translate into higher costs and prices. With faster productivity growth we can break this pattern. With faster productivity growth and supporting measures we can even aspire to a virtuous cycle of lower price increases followed by lower wage and salary demands in a progressive reduction of inflation. We also need more investment to adapt to the new era of costly energy. We need more investment to reduce further our still excessive reliance on foreign oil supplies. Ey some estimates, investments of more than a trillion dollars will be needed in this decade to expand domestic energy production from conventional sources, synthetic fuels from coal and shale, unconventional natural gas and renewable energy sources. All over America there is plant and equipment built for the era of cheaper energy that is now in need of replacement. And we need to produce more energy-efficient consumer products. The auto industry alone demonstrates that the cost of the necessary retooling will be huge. Over the entire post-war period, business fixed investment have averaged about 10 percent and has never exceeded 10.8 per cent of GNP. In this decade, we need to sustain a level of investment that will surpass that record. A Program That Addresses Our Long-Term Problems President Carter’s economic revitalization program will provide powerful incentives for the investment that America now needs. Over a few years, the program will increase investment to at least 11 percent of GNP. The proposed new simplified depreciation system will increase depreciation allowances by 40 percent. Eecause of its simplicity, small businesses, as well as large, will be able to gain the benefits of faster depreciation. Partial refundabi1ity of the 10 percent investment tax credit will help firms that are temporarily unprofitable to restore their competitiveness. It will also give an important boost to new firms that are a major source of innovation and technological change. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -6- An additional 10 percent investment tax credit for eligible projects in areas of high unemployment will help communities regain economic health with new or revitalized enterprises. Liberalized depreciation, refundable investment tax credits, new aid to areas of high unemployment, and continued fiscal restraint will provide a climate for strong growth in private investment. Increased private capital investment will be complemented by selective expansion in public investment: — an increase of $1.2 billion over two years for energy conservation; — $600 million more to stimulate research and development, assure 3 percent real growth in basic research and promote government-university-industry cooperation. — $600 million for increased public investment in transportation, including port improvements required for increased coal exports; and — major investments in human capital. Along with the increases in physical capital, we must and will make new efforts to enhance the skills of our workers and to provide retraining and relocation assistance in industries and areas in transition. Careful attention to the problems and needs of workers will facilitate the needed shifts to new technology and new industries. The President’s program also attacks inflation directly by offsetting the 1981 Social Security tax increase that would otherwise raise business costs and cut workers take-home pay. ★ ★ ★ ★ ★ I hope, I believe, that you and the wider American public understand the need to attack our long-term economic challenges head-on, before they exact a further toll on our economic well-being. When the President's program is fully in effect it will increase investment's share of GNP by 10 percent. It will help achieve the decade of investment America needs. It is the right program for the 80s. If we have the wisdom to choose this course, and the will to persevere, we will surely attain our national goals of balanced growth, high employment and price stability. Ane we will strengthen American leadership in the search for world peace and prosper ity. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Departmental the]~REASURY ’ WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR PELEASE AT NCON EDT September 25, 1980 Remarks of the Honorable G. William Miller Secretary of the Treasury before the Conference Board New York, New York September 25, 1980 The theme of your meeting today is the outlook for 1981. In today's circumstances it is particularly difficult to gauge the economic prospects for even one year ahead. Yet, it is a time when government policies need to be formulated not for a single year, but with a much longer viewpoint. For you, multi-year planning is natural. In government, there is a tendency to react to this morning's headline and to today's new economic statistic. Carrying out a longer-range strategy is difficult. But unless we can adopt, and stick to, a longer-term strategy our programs will be superficial and their successes fleeting. Cur tasks for the 1980s are clear. We must wring inflation out of our economy. We must complete our adjustment to the new energy realities that were first driven home in 1973 — as events of the last few days so vividly demonstrate. We must step up the growth of productivity and restore our competitive edge. Inflation, energy, lagging productivity are problems that have built up over a period of years. They will not yield easily or quickly. It's going to require a determined, steadfast approach. M-676 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -2- An Economy Poised for Recovery The recession of 1580 appears to be coming to an end. I will not endeavor to pinpoint the trough or forecast the rate of expansion. But a wide range of statistics tells us that the worst of the decline is over. Consumer spending has risen significantly, aided by improved auto sales. Manufacturers' new orders are stronger and labor markets are beginning to stabilize. The index of leading indicators has risen sharply in the past two months. Housing starts have increased substantially. The automatic fiscal stabilizers and the self-correcting processes inherent in our economy have done their work. The economy is now poised for recovery. As measured by the CPI, inflation has abated. However, the underlying inflation rate remains dangerously high. We have no reason to relax our efforts against that menace. Unemployment also remains unacceptably high. Particular industries and areas are suffering severe dislocations. To counter this, we need a temporary extension of unemploy­ ment compensation and temporary assistance to communities severely impacted by the downturn. Eut what we do not need in our present circumstances is traditional, old-fashioned, broad-based economic stimulus. Even today a large consumption-oriented tax cut would be the wrong medicine. Instead of offsetting the downturn, it would add to demand and worsen inflation during the recovery. We do not need — we cannot afford — a tax cut that contributes little or nothing to reducing inflation or fostering increased investment. Even the talk of such action incites inflationary expecta­ tions, unsettles the financial markets and raises interest rates unnecessarily. 1980 is not 1960. Today we have to modernize not only our assembly lines but our thinking about economic policy. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -3- The Basis for Economic Progress We need to follow a course that reinforces the impending recovery with measures that are carefully targeted to the long-term problems of inflation, energy and competitiveness. The basis for such a program is already in place. The Administration has pursued a policy of fiscal restraint. Eudget control isn't easy. Much of the Federal budget is locked-in by entitlement programs that cannot be affected without legislative changes. And within the controllable portion, every program has beneficiaries who will protect it with single-minded zeal. However, we have made progress. The President introduced zero-based budgeting and made many difficult budgetary decisions. In the four budget years since 1977 the real growth of Federal spending has been held to 1.6 percent a year, well below the growth of GNP. The Administration has also been working aggressively to reduce the cost of government regulation. President Carter has relied more on market forces than any other recent President. Trucking, airlines and deposit interest rates are being deregulated. Unnecessary and outdated regulations have been abolished. New procedures have been created to assure a tetter balancing of the costs and benefits of regulations. And we are systematically seeking more efficient, innovative ways of achieving regulatory goals. The 1973 oil embargo should have been a signal of the need to encourage conservation and domestic energy production. Pricing energy at the world level was the single most important step that could have been taken to accomplish this. However, following the Arab embargo, the United States held domestic oil prices below the world level. In effect, we told our people that energy was cheaper than its replacement value. Dependence on OPEC went up and up. Drilling and production in the lower 48 went down and down. President Carter made the tough decision to decontrol domestic oil prices and set us on the road to less dependence on foreign energy. Now, at long last, we have an energy program that provides strong incentives for conservation and domestic production. In addition to the price incentives provided by decontrol, Congress has approved $4 billion in tax credits to stimulate energy production and conservation. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -4- Twenty billion of an eventual $88 billion has been appropriated to assist the private sector in creating a new synthetic fuels industry capable of supplying the equivalent of 2 million barrels of oil a day by 1992. And the Administration has proposed a $10 billion program to help electric utilities convert from oil to coal or other fuels and save an additional 500,000 barrels of oil a day by 1990. Domestic drilling and exploration are now at record levels, oil imports down 20 percent over three years ago and American business using less energy for each unit of output. We have also acted vigorously to assure a strong and stable dollar in foreign exchange markets. The Need for a Decade of Investment But serious economic challenges of inflation, energy, productivity and competitiveness remain. To address these challenges, we need a decade of unparalleled growth in investment. Investment in new plant and equipment is not the only factor affecting productivity. Eut an increase in the amount and quality of the capital equipment available to each American worker is the single most important step we can take to bring about higher productivity. And faster productivity growth is a key to restoring American competitiveness and winding down inflation. From 1947 through 1965, the amount of physical capital for each person in the American civilian labor force grew by 3 percent a year. Productivity increased by 3.2 percent a year. In the years between 1965 and 1972 when growth in capital per worker slowed to 2.6 percent, productivity growth dropped to 2.3 percent. And between 1972 and 1976 when the capital-labor ratio grew only two tenths of a percent per year, productivity growth fell again -- to only eight tenths of a percent. An increase in investment means not only more but better tools for our workers. Investment is the means of bringing into use the new, more efficient technology that can restore and enhance American competitiveness. We need, and the Administration is supporting, strong research and development programs. But successful R & D will be of little avail unless we apply it in the form of new equipment in the hands of American business and labor. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -5- Increased investment, and the faster productivity growth that accompanies it, will increase real incomes and help hold down inflation. When productivity growth is slow or nonexistent, wage and salary increases translate into higher costs and prices. With faster productivity growth we can break this pattern. With faster productivity growth and supporting measures we can even aspire to a virtuous cycle of lower price increases followed by lower wage and salary demands in a progressive reduction of inflation. We also need more investment to adapt to the new era of costly energy. We need more investment to reduce further our still excessive reliance on foreign oil supplies. Ey some estimates, investments of more than a trillion dollars will be needed in this decade to expand domestic energy production from conventional sources, synthetic fuels from coal and shale, unconventional natural gas and renewable energy sources. All over America there is plant and equipment built for the era of cheaper energy that is now in need of replacement. And we need to produce more energy-efficient consumer products. The auto industry alone demonstrates that the cost of the necessary retooling will be huge. Over the entire post-war period, business fixed investment have averaged about 10 percent and has never exceeded 10.8 per cent of GNP. In this decade, we need to sustain a level of investment that will surpass that record. A Program That Addresses Our Long-Term Problems President Carter's economic revitalization program will provide powerful incentives for the investment that America now needs. Over a few years, the program will increase investment to at least 11 percent of GNP. The proposed new simplified depreciation system will increase depreciation allowances by 40 percent. Eecause of its simplicity, small businesses, as well as large, will be able to gain the benefits of faster depreciation. Partial refundability of the 10 percent investment tax credit will help firms that are temporarily unprofitable to restore their competitiveness. It will also give an important boost to new firms that are a major source of innovation and technological change. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -6- An additional 10 percent investment tax credit for eligible projects in areas of high unemployment will help communities regain economic health with new or revitalized enterprises. Liberalized depreciation, refundable investment tax credits, new aid to areas of high unemployment, and continued fiscal restraint will provide a climate for strong growth in private investment. Increased private capital investment will be complemented by selective expansion in public investment: — an increase of $1.2 billion over two years for energy conservation; — $600 million more to stimulate research and development, assure 3 percent real growth in basic research and promote government-university-industry cooperation. — $600 million for increased public investment in transportation, including port improvements required for increased coal exports; and — major investments in human capital. Along with the increases in physical capital, we must and will make new efforts to enhance the skills of our workers and to provide retraining and relocation assistance in industries and areas in transition. Careful attention to the problems and needs of workers will facilitate the needed shifts to new technology and new industries. The President's program also attacks inflation directly by offsetting the 1981 Social Security tax increase that would otherwise raise business costs and cut workers take-home pay. ***** I hope, I believe, that you and the wider American public understand the need to attack our long-term economic challenges head-on, before they exact a further toll on our economic well-being. When the President's program is fully in effect it will increase investment's share of GNP by 10 percent. It will help achieve the decade of investment America needs. It is the right program for the 80s. If we have the wisdom to choose this course, and the will to persevere, we will surely attain our national goals of balanced growth, high employment and price stability. Ane we will strengthen American leadership in the search for world peace and prosper i ty. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 y'7K ACTION Date-. September 12, 1980 Subject: Conference Board Speech We need to determine what approach to take to your Conference Board speech on September 25 in New York. This is the Conference Board's annual meeting on the business outlook, and the audience will have heard from A1 Sommers, Henry Wallich and other economists before you speak. My guess is that the audience would be most interested in your views about why the Administration’s approach to revital­ izing the economy is superior to the Reagan plan. However, you are appropriately reluctant to have any­ thing in your formal statement which is directly political. Thus, I suggest that we do a short speech on the program that would take about 12 to 15 minutes to deliver and leave plenty of time for questions and answers. We also need to decide just who will write the draft of the speech. None of us at the staff level have had much success at all with speeches, and it is absurd to expect the Secretary of the Treasury to have time to write his own. If you like, I can prepare an outline and some core materials, which Public Affairs, using their journalistic skills, will try to put into a somewhat more punchy speech format. Would you advise us how you like to proceed? Approve Disapprove See me flrm j __l <y J i j t jif i i ■ ,1/^“ Initiator Vl Reviewer Reviewer Reviewer Reviewer Ex. Sec. Surname ED:SYRON MUNSEY r. /<>« z Digitized for FRASER 7 Initials/Date https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

G. William Miller (1980, September 24). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19800925_miller

@misc{wtfs_speech_19800925_miller,
  author = {G. William Miller},
  title = {Speech},
  year = {1980},
  month = {Sep},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19800925_miller},
  note = {Retrieved via When the Fed Speaks corpus}
}