November 25, 1974
Page 37165
TREAT RECESSION, NOT JUST INFLATION
Mr. MUSKIE. Mr. President, nearly a month ago I spoke over nationwide television on the economy.
I was frankly critical of the Ford pre-election economic program because it was designed solely to curb inflation and did not deal with the reality of recession.
I have been in Maine with my constituents most of the time since that speech.
And I can tell you what they think is wrong with the economy: Rising unemployment – shrinking sales – recession.
They are simply not prepared to accept the idea that this Nation must "go through the wringer," us the economists put it, in order to beat inflation.
That was my view when I spoke on October 22, and it is my view today.
And I regret to say that the White House, while it now says the economy may be a little soft, has not changed course one bit. They have only suggested that people in Kennebunkport and Augusta – who are already on very tight budgets – spend a little more to keep the economy going. That would not work.
I believe the proposals outlined in my speech will work. They will enable us to deal successfully with both recession and inflation. I ask unanimous consent that my text be printed in the
RECORD.
There being no objection, the text was ordered to be printed in the RECORD, us follows:
THE STATE OF THE ECONOMY– A DEMOCRATIC VIEW
(By Senator EDMUND S. MUSKIE)
A week ago President Ford addressed you from Kansas City on the problems of our economy.
He gave us a list of ways we can help cut waste and keep prices down. Many of those suggestions came from you in the first place.
They show – if anybody ever doubted it – that there are plenty of Americans willing to do their part to straighten out the economy.
But to a great many of us in Congress – and to many, many Americans around the country – the President's economic policy and his Kansas City speech raise serious questions:
Are the sacrifices he called for to be equally shared?
How much of a drop in the rate of inflation can we expect, and when – for these sacrifices? ... and at what cost in jobs lost?
Admonitions to "balance your family budget" when the family paycheck will not cover bare necessities begs the question of what we must do. And to families which are really squeezed, it is cruel advice.
Advice to "save as much as you can and watch your dollar grow" in the face of an obviously shrinking dollar is more of the same.
What I am going to say comes not from partisanship ... not from any illusion that our economic problems are simple ... and not from any desire to complicate the President's task.
Moreover, I think Congress has demonstrated its willingness to cooperate with the President in cutting low priority Federal spending. We have shown that we are prepared to set an example for the country ... that we are anxious to reduce the taxpayers' burden ... that we want to have some funds left in the Treasury for this Nation's high priority agenda.
Finally, the Administration's program has some sound elements which all of us recognize and support.
But in all frankness, the President's speech does not reflect the seriousness of our economic situation. My concern is that it aims entirely at slowing inflation, which is part of the problem but denies the threat of a deep recession, which is more and more real to millions of American families ... that it will put this country through the wringer unnecessarily ... and that the final result will be a weaker Nation and not much progress on inflation.
Let us try to put the problem in down-to-earth terms:
Most families in America belong to what we could call the "struggling class."
Through hard work, they hope to achieve some basic goals: to buy a home and pay off the mortgage, to educate their children, and put some money away for retirement.
These are modest aspirations. All we really want is the freedom to make a go of life in our own small way.
Those in the struggling class know who they are.
You don't benefit from tax shelters, or investment tax credits, or depletion allowances.
You're not rich. Some of you are poor according to the figures.
When you were younger, the salary many of you now earn looked good. And you expected each year to increase your pay.
In the last year, all this has been turned around ... and that is the real measure of America's economic crisis. Your purchasing power and your real income have declined. More declines are on the way, and these declines are going to affect you and your family.
So we have a real and urgent interest in what kind of economic medicine we are asked to take . . . and who takes it.
To understand today's crisis, we have to look back to the chaos of start-stop, shortsighted economic policy-making over the last six years.
When the Nixon Administration took office, prices were increasing, but at about four percent a year. Last year it was 13 percent. This morning the Consumer Price Index for September showed a 15 percent annual rate of increase and 25 percent for food. A loaf of bread that cost 22 cents in 1968, costs 43 cents now.
Unemployment then was three-and-a-half percent. Today it is approaching six.
The prime interest rate then was seven percent. Today, it is just beginning to edge down from twelve.
The dollar that you earned in '68 is now worth 75 cents, and falling fast.
We have had two freezes and four phases, two recessions and two dollar devaluations. We've had tight money, runaway prices and unemployment.
Whatever else you may say about the whole Watergate affair, it meant tragic, costly neglect of the public business of America.
So it is asking a lot, I think, to go to the American people now with buttons and slogans, and assure them that everything will come out okay in the end.
Five-and-a-half million people are out of work today.
Half a million of them lost their jobs last month.
More will lose their jobs in coming months.
All of this has happened against the backdrop of some very powerful economic forces which have upset America's traditional sense that there is plenty of everything we need.
The cost of imported oil has quadrupled in the last year, and our dependence on imports continues to grow.
Some countries that supply other raw materials have decided the world will pay dearly for their products.
Crop failures here and abroad have caused shortages which have driven up food prices.
The Vietnam war strained our economic system greatly as we tried to provide guns and butter without regard to paying the bills.
And finally, the conventional method of curbing inflation with tight money only heightened inflation and produced unemployment.
These forces – some from abroad – have run too long for simple solutions. As H. L. Mencken once said, "There is a solution to every human problem that is simple, neat, and wrong."
Not that any of these underlying problems is insurmountable. We can lick them. We can win, as the President says.
But we will do it better, and faster, with greater resilience, if the full resources of a strong American economy can be brought to bear. And an economy flat on its back in recession cannot cope.
So the cost of a deep recession will be high, not only for struggling families, but for America.
All Americans wish President Ford well. We look to him for leadership. But does his program measure up?
We must be disappointed that President Nixon's men of narrow vision are still in the White House – the ones who engineered the policies of high interest, high prices, and high unemployment ... who continue to make the economic policy President Ford pursues.
And we are dismayed that at a time of economic hardship for most Americans – particularly in the middle and lower income brackets – the most the President has to offer is more taxes for many Americans.
I believe it is offensive to most of us that the Chairman of the President's Council of Economic Advisors puts stockbrokers at the top of the list of Americans who are hurt by inflation.
His endorsement of the law Congress had already shaped to aid the housing industry was welcome but overdue.
His desire to reduce federal spending is one most of us share. We are troubled that the President has not specified where he would cut. the budget. He has given us no assurance that it would not be in the areas of greatest domestic need.
He proposed a massive increase in tax benefits to business: No doubt this will mean some jobs in the long run. But he has proposed that individual middle-income American families should pay for these business-tax benefits.
Removing limitations on the production of rice, peanuts and cotton offers no real hope of a better life to most farmers or lower prices at the supermarket..
These are the depressing realities about the President's economic message. It strikes hardest against the average American family. It exempts those who already have most. It does little for those who have least.
And it falls to acknowledge the cost, or the threat, of a serious and prolonged recession.
The Nation needs decisive action in four areas:
First, we have to deal with the reality of recession. The technical standard has been met – shrinking output for the last three quarters. The human standard has certainly been met – payless paydays, empty cupboards and the discouraging search for work in more and more American families.
Any belt-tightening at the Federal level must take full account of whose middle gets squeezed ... whose job is lost ... whose income in cut. Let us never forget that inflation and unemployment hit first and hurt most at the grassroots. They are human problems, not statistics. And government has a responsibility to deal with that impact.
The President should tell us the cuts he proposes to make before the election next month, so that we can debate what he has in mind.
The Federal Reserve should further ease its high interest rate policy. The President referred in his speech to the needs of the housing industry, which is in a depression, and not just a recession.
The Federal Reserve should supply credit at reasonable rates, especially to housing and small business.
Rather than the five percent inflation surtax the President has proposed for middle Americans, he should increase the minimum income tax on the wealthy and make estate taxes more equitable.
This would raise about the same amount of revenue from those who can truly afford it without cutting back on consumer demand which is already slack. There is no economic justification for taxing the buying power of middle Americans at a time when we are in a serious national recession.
Next, we need direct, aggressive action to slow down the wage-price spiral. And we must use methods which won't deepen the recession.
A deep and prolonged recession probably would bring prices down. If enough people are out of work and can't afford to buy, businessmen are less likely to raise prices.
If enough workers are laid off, others are less likely to push for higher wages, no matter how much they are hurting.
If we are willing to accept unemployment at seven or eight percent for a couple of years, we might see inflation drop to seven or eight percent, too. And that's not good enough.
The responsible alternative is a national policy of wage-price restraint based on assurances rather than fear–
... assurances to businessmen that their costs for materials and labor will moderate;
... assurances to workers that their cost of living will become manageable;
... and a commitment from both to help break the futile, self-defeating game of catch-up that all are now forced to play.
The President should do some hard bargaining – to dampen price and wage increases that are about to occur. The roll-back on automobile price increases was a small but worthy start.
I would like to see the President meet regularly with business and labor leaders in all major sectors of the economy to work out guidelines for action and agreements for restraint.
A temporary cut in payroll taxes to help fatten pay envelopes could be a central part of a trade-off to help moderate wage demands.
But let us be clear that if vigorous, voluntary wage and price controls fail, mandatory action must be taken. If the President wants Americans to eat less, drive less and demand less, he should be prepared to ask some of them to charge less.
It should be made clear beyond doubt that achievement of price and wage restraint is national policy.
Third, Congress and the President must now make a fresh commitment to tax equity for all Americans. In these hard times, the inequities of our tax structure are all the more glaring ... and our commitment to greater equity should be all the stronger.
The President has suggested some changes in taxes, but the mixture is wrong.
As I said before, we can raise as much by increasing minimum taxes on the very rich and increasing inheritance taxes on great estates, as the President can hope to raise with his tax on middle-income families. The five percent surtax on corporations designed to pay for the first year of the increased business tax credit should be extended as long as the credit lasts, so that ordinary working Americans do not have to foot the bill for business investment in the future.
Finally, America must address itself to one of the chief engines of inflation ... and one where we are now most at the mercy of forces beyond our borders – the energy shortage.
This year, two-and-a-half percentage points worth of inflation came from higher oil prices alone.
Despite the gas lines of last winter, we are no longer driving 55 miles an hour.
Despite the higher prices of petroleum, we are importing more now than a year ago.
We have seen our stock market rise and fall on the basis of rumors as to what the Arab oil sheiks are going to do with all the dollars we send them.
If there is one way American families can tighten their belts, if we are going to win the war on inflation, it is in cutting energy use. If our efforts to reduce oil consumption do not show success, some form of rationing must be established.
If prompt agreement is not reached with the auto industry to increase gas mileage in new cars within the next two years, mandatory legislation to impose fuel economy requirements will be required.
Fuel efficiency must join environmental concerns as a standard for federal transportation programs.
And while we conserve, we must commit ourselves to a crash effort to develop alternate energy sources.
You know, there was an oil scare in the middle of the 19th century. Whales were getting harder and harder to find.
Then some prospectors in Pennsylvania drilled the nation's first oil well. And pretty soon whale oil was hard to find.
I would be very surprised if America's technology does not produce some practical alternatives to petroleum – solar heating ... truly safe atomic generators. It will come ... and the stranglehold of the oil sheiks will go.
But that is going to require a major commitment by the Congress and the Administration to the development of alternative energy sources.
The President has read you some of his mail about the economy. I have gotten some, too.
Mrs. Penny Meader of Cape Elizabeth, Maine, reports that the company she works for has increased prices on its product four times this year because of increased steel prices – but wages have stayed the same. She asks, "How far are we to tighten our belts? ... I want to see something done about the exorbitant prices we are now being forced to pay ... I don't want to hear any more words."
Mrs. Betty Loriz of Highland Mills, New York, writes that she has begun to cut her husband's and her children's hair and has installed a wood-burning stove to conserve energy. She reminds me that she has already economized, and wants to know why her family's income tax will increase.
Marilyn Stinchfield Lease of Bangor, Maine, advises that we close tax loopholes on corporations and the wealthy. She writes, "it is time all Americans truly worked together to fight inflation and get the economy back on its feet, but with each one pulling his share of the load."
Kirby Pierce of South Windham, Maine, writes that he is a Vietnam veteran now working for a homebuilder who faces a layoff. He asks that mortgage money be made available now to keep thousands like him on the job.
David Allen Zalenski, a carpenter in the same town, writes, "I don't want to lose my job and draw unemployment, but there won't be much choice unless something is done very soon."
I have hundreds of other letters like these ... from people who want to fight inflation, but not without the assurance that others will share the sacrifices and burdens.
The President speaks of the need for sacrifice. But where is the sacrifice in his tax proposals for the Americans who pay no taxes at all? Where is the sacrifice for the businesses that will have the advantage of the investment tax credit without having to pay for it in future years?
Many American working people sincerely believe that they have been sacrificed to these Republican economic policies of inflation control by recession: that their jobs, their standard of living, their hopes, and their dreams are being sacrificed by this Administration.
And sacrificed for what? What is in store for us in America? What is the President's vision of the America of the future?
We listened to his two speeches on the economy for a commitment of the vast resources of the Federal Government and the energies of our people to technological breakthroughs in the fields of food production, energy, and housing – a commitment which might bring us the supplies of these precious commodities we need at prices we can afford.
I do not believe that the country which rebuilt the post-war world, which harnessed nuclear power, and which flew to the moon is incapable of a comparable national effort to meet its own citizens' basic needs.
Much has happened during the past several years to destroy the confidence of our citizens in their government. We have seen too many promises made and too many broken.
We have had too many surprises, most of them unpleasant.
We have had too many predictions that prosperity is just around the corner – a corner we never seem to turn.
Last week the Secretary of Commerce said that this deepest recession since World War II is just an "economic waffling." Maybe it's just waffling to him, but it's dog food on the dinner table to some Americans.
I believe all Americans are prepared to sacrifice if that sacrifice is toward some clear and worthy goal. I think Americans will sacrifice if they are convinced that all Americans are being called upon to sacrifice, not just those who are least able to protect their own economic interest.
The President has yet to show us such a vision for America, or to convince us of the fairness of his plan. Americans will work and sacrifice together to fight inflation, but the call to action must be clear and convincing; for, as the scripture warns, "If the trumpet sounds an uncertain sound, who will prepare for the battle?"