October 9, 1975
Page 32906
A PRESCRIPTION FOR ECONOMIC RECOVERY
Mr. MUSKIE. Mr. President, I ask unanimous consent that my remarks to the National Tire Dealers and Retreaders Association's Convention October 7 in Boston be printed in the RECORD.
There being no objection, the remarks were ordered to be printed in the RECORD, as follows:
REMARKS BY SENATOR EDMUND S. MUSKIE
It's a pleasure to be here today to give you my perspective on the American economy. It's also a great pleasure to be here with this association of businessmen.
I spend most of my days in Washington, where we deal with the economy on an abstract level. Sometimes you can get so wrapped up with the abstractions — macroeconomics, capital formation, disintermediation, and so forth — that you can forget what the economy really is all about.
And that's people like yourselves; working hard, watching your costs, and planning a future for yourselves and your families. When things go wrong — when government policy starts to conflict with sound economics — then you're the first people to know.
You know what the problems are already. You know what the priorities must be. You just need to know what the solutions are going to be.
I think you will agree with me that the nation's number one priority is to get this economy back on the road to expansion and full production.
The economy right now is like a sick man who's just come out of intensive care. The worst is over for now, but recovery can be slow and painful, and there's no guarantee that he won't have a relapse if the treatment isn't the right kind.
The vital signs are mostly good right now:
Unemployment is down to 8.3 percent in September, a good improvement from the 9 percent at the beginning of the summer. Since March, we've added 1.5 million more jobs to the economy.
Industrial production has increased at nearly a 12 percent annual rate since May, and is likely to stay strong for the rest of the year.
Confidence is returning to consumers. According to one estimate, about 8 percent of families plan to buy a new automobile in the next six months.
There has even been some improvement in the home building industry, with housing starts 14 percent higher now than in June.
But the patient isn't ready yet to get out of bed. There are still some vital signs that could mean a relapse:
After slowing considerably in the first half of 1975, prices are advancing again — not because of excess demand or labor costs but because of food and energy prices.
Interest rates are moving back up as the Federal Reserve's tight money policy has slowed down money supply growth. The prime rate has returned to 8 percent, a one-third increase since this Spring.
And most important, there are still eight million Americans out of work, one million more discouraged workers, and three million who are working part-time.
When you look at all the vital signs — both good and bad — it is clear that the economy will keep moving up for the rest of this year.
However, there is a very real possibility that 1976 won't be as good. Recovery could be stalled — or even turn down again — by mid-year, and that would mean more inflation, more unemployment, and more federal deficits.
But the fact that the economy has turned around is very encouraging, for it demonstrates that Congressional policies have been on target, that our independence from Administration policy — our insistence on strong economic stimulation — has paid off for the American people.
We saw the dangers of recession when the Administration told us that inflation was the only problem.
We acted to reduce the effects of unemployment and keep the economy moving when the Administration told us to put the brakes on.
Over the Administration's objection, we insisted on tax cuts sufficient to give a sharp boost to consumer demand which turned around the long slide down.
And when the Administration urged Congress to enact a hastily-devised energy policy, we held back. We prevented a severe shock to consumer pocketbooks. That would have happened at the worst possible time.
Now, I'm not here today to tell you that everything Congress has done is right, and that everything the Administration has done was wrong. There are no saints or sinners in making economic policy, and people who reduce our complex problems to that level do a disservice to the rest of us.
But what Congress has accomplished — and it's been hard, believe me — is to regain its partnership in making economic policy. Over the years, Congress gave much of its budget and spending authority to the President. Those were years when we thought that anything to make a strong Executive Branch even stronger was good for the country.
We learned an important lesson from those years. We learned about accountability — just like many of you have learned in your businesses — that without accountability, you're more likely to get bad decisions than good.
You know, there's nothing like having to face the voters every few years to make you stop and think about the human consequences of your decisions. That's why Congress had to start taking back the purse strings.
We began that process with enactment of budget reform. We restricted the authority of the President to impound appropriated funds and provided ourselves new resources to get spending and revenue targets in line with economic conditions.
So far it's working. And much of our success with starting the recovery and gaining control of spending has been due to the new budget process.
It's allowed Congress to take a very thorough look at Administration proposals and head off mistakes before they have an impact on the average citizen.
There won't be many more snow jobs on Congress, as long as this new system works. That's been especially clear in what's happened about energy.
In February, the President proposed an energy program to cut imported oil within a year by a million barrels per day. He proposed an import fee of $3 per barrel, a $2 excise tax on domestic oil, and removal of all price controls on natural gas and oil. It was a classic, textbook solution — to make people use less, raise the price so high that they won't be able to afford as much as before.
It was also a very bad solution.
It would have been irresponsible — and disastrous — to take price controls off the 60 percent of our oil that is held at $5.25 a barrel, and let it rise to the market price of $11.50 almost overnight. It would have had a devastating effect on the cost of heating oil, the cost of electricity, the cost of gasoline, the cost of industrial fuels at just the time factories were already shut down and workers lined up for unemployment checks.
Now, Congress realized that. Our economists determined that the President's policy would increase unemployment by another million workers and inflation by another 3 percentage points.
So we said no to the President. Within 30 days of his announced policy, we extended the price controls until its expiration this Summer. We extended controls again, and this time the President vetoed the extension, and the veto was sustained.
He got the policy he asked for in February. But now he understands what we understood in February — that unless controls are there, the price of oil will wreck the economic recovery.
That's why he agreed to extend controls until November 15.
We're in the process of working out a compromise with the President. And the likely result will be a gradual decontrol, stretched out over several years to let business build these costs into their plans, and let families adjust their household budgets.
Congress has fought all year to keep energy prices down. We're going to keep oil prices as low as possible now and in the long run.
We've been accused by the President, the oil companies, and much of the public of dragging our feet. But the fact is, we had the right policy all along.
We've pushed for energy conservation, and we've pushed for alternative sources of energy. America has as much coal as the rest of the world. We already can use it efficiently and cleanly. All we have to do is broaden its use commercially.
We can develop solar energy, oil shale, coal gasification, and oil on the outer continental shelf.
These are the ways we can show OPEC nations that we won't allow our energy policies to be dictated by what they want to charge us.
But everything we do with energy must be in the overall context of economic recovery.
Congress has said that. While we held back a bad energy policy from taking place, we enacted a strong recovery program.
We expanded unemployment benefits, public service jobs, and public works projects to help people back on their feet.
Congress also knows that the key to recovery is in the private sector — to expand job opportunities with more consumer dollars and investment capital.
That private sector is expanding today. But we must remember that we've got a lot of distance to cover before we return to full employment. A slow recovery program could keep unemployment in the 7 or 8 percent range next year and the year after that.
Congress believes that's unacceptable. I know that's unacceptable. That's why we must adopt a national target of an eight percent real growth rate until we return to full employment.
Even then, that would take 2½ years to reach 5 percent unemployment. But with a flexible economic policy we can sustain that necessary growth.
The key to this will be cooperation between Congress, the President, and the Federal Reserve Board. We don't have that cooperation yet. The Federal Reserve, for example, has been tightening credit and slowing money growth, directly counter to the Congressional tax cut.
Clearly, we need more cooperation.
We must allow the money supply to grow — not at the 5 to 7% percent rate Arthur Burns wants — but at 8 to 10 percent. Without that, small businesses and consumers will once again be crowded out of the credit market.
We must keep energy prices down, consistent with our duel needs of recovery and energy independence.
And, we must extend the income tax cut into 1976. We run the risk of stalling the recovery without this boost in consumer spending.
Now I would like to comment on President Ford's message of last night.
As I have said, you can make the case for a moderate tax cut now.
The Budget Committee's concurrent resolution of last spring contemplated that this year's tax cuts would be extended into next year to make sure we don't put the brakes on the economy just as it is beginning to recover. Most of the testimony before the Budget Committee during the last two and a half weeks has pointed in that direction — although both the President's Secretary of the Treasury, Mr. Simon, and Arthur Burns were against extending the tax cut. Arthur Okun, generally viewed as a liberal economist, was for continuing the tax cut at present levels, but was frankly concerned that doing more might now overdo a good thing and stimulate more inflation.
Now the President's proposed cut is evidently larger than has been recommended to us.
Even if all the savings he wants for the next fiscal year occur, it still appears that his proposal will give the economy a significant added stimulus during the remainder of fiscal 1976. The inflationary consequences of that kind of stimulus will have to be weighed carefully.
As for the outlay side of the ledger, I don't think any of us doubts that there is a lot of money to be saved in Washington. I wouldn't be spending the hours and days I do as Chairman of the Budget Committee if I didn't believe that. There are too many bureaucrats and too many bureaus. There are lots of programs that could be more efficiently run. And it is our objective to see that they are.
But with prices rising every year . . . with eight to ten million Americans out of work, on food stamps and unemployment compensation and welfare . . . with the pressure for more and more defense spending — $28 billion in cuts is easy to talk about but hard to find.
This year the President proposed to save $17 billion. Here's what he proposed to cut: Medicare and Medicaid benefits, so that recipients would have to pay more for service . . . food stamps, so they would cost more . . . child nutrition and school lunches . . . cost-of-living adjustment for social Security recipients who are hit very hard by inflation . . . and increases in veterans benefits.
But he proposed an increase in defense spending over last year by several billion dollars, and this fall he has added a multi-billion dollar aid program for the Middle East.
It isn't spending the President objects to — provided it is Presidential spending. What he doesn't like is for Congress to change his spending priorities.
Last night the President did mention protecting the old, the poor and veterans. But it is worth noting that last time around he proposed to cut those programs which provided some protection for them against the impact of recession, inflation and higher energy costs which he seeks to make even higher.
To use the President's figure of speech, we also know a train wreck isn't the answer.
The economy has turned up, but there are going to be a lot of unemployed Americans for a long time who need the protection afforded by some of those programs the President would apparently like to cut. And renewed inflation is a threat we simply cannot underestimate.
A healthy economy, where people can work and take care of themselves, will cut the cost of recession-related and inflation-boosted programs, and eliminate federal deficits.
I know we can do it. This nation has all the resources — a skilled and productive labor force — the industrial capacity — natural abundance — and the management skills.
Now we need the cooperation and leadership to pull all these resources together — to restore confidence — and to get this country moving again.