April 12, 1978
Page 9849
IS CONGRESS UP TO THE CHALLENGE OF INFLATION?
Mr. MUSKIE. Mr. President, yesterday, President Carter announced a series of anti-inflation initiatives. He pledged his influence, his power, and his prestige to the battle. In doing so, he challenged each of us to follow his lead. Now the Congress must ask itself whether we are up to that challenge.
President Carter called on the Nation to tighten its belt. He called on individuals who suffer least from inflation to accept a voluntary freeze on income. He has told his own top officials that their salaries will be frozen, and, in a symbolic gesture to set the tone for both business and labor, he has set a ceiling on a wage increase for Federal employees.
The Congress voted to forgo any increase in pay for Members last year, and we should do so again this year.
The President has pledged to continue to fight unemployment while trying to maintain control of inflation. He has asked us to pledge ourselves to a degree of national austerity. He has asked us to increase productivity by reducing waste. He has asked us to lower the outflow of dollars by conserving energy.
He has asked Congress not to contribute to inflation as a result of excess Federal spending and increased Federal deficits. He has pledged to back his words with the credibility of his office and the power of his veto.
The President's requests are a tall order. They represent a challenge to himself as well as to the Congress. The country will follow the President's lead based on his performance.
But the Congress too has a special responsibility.
The Congress pledged a new approach to spending priorities in the congressional budget process, but has, whenever politically convenient, ignored that discipline.
We now have before us a challenge to our credibility. The question is whether each individual group will insist on being the last under the price-wage spiral fence or whether each will place the national interest first.
Some of us asked the farmers for restraint and a majority of our colleagues disagreed. We will ask Government employees for restraint and we will be asked to reject that request for restraint. We will have another opportunity when the tuition tax credit legislation comes to the floor of the Senate. And, undoubtedly, we will have repeated opportunities as appropriations and tax bills come before us.
It is time to hold both the Congress and the President politically accountable for each individual decision which has a detrimental effect on our battle against inflation. The public should know whether each Senator, each Representative, and the President himself is acting as well as talking against inflation. Each Member should have an opportunity to explain to his constituents why a particular special interest. like the grain farmers, was placed above the general national interest — and even the interest of other farmers — in the fight against inflation. Our voters will have the right to judge for themselves whether they are prepared to accept the judgment of their representatives.
The President said, in his speech:
We all want something to be done about our problems — except when the solutions affect us. We want to conserve energy, but not to change our wasteful habits. We favor sacrifice, as long as others go first. We want to abolish tax loopholes — unless it's our loophole. We denounce special interests, except for our own.
No Act of Congress, no program of our government, no order of my own can bring out the quality that we need: to change from the preoccupation with self that can cripple our national will, to a willingness to acknowledge and to sacrifice for the common good
It is only with this kind of discipline — with the electorate informed of the meaning of the vote we make — that the effort the President has initiated can be successful. We have an opportunity and a responsibility, and I for one am prepared to join the President in his new initiative.
Mr. President, I submit for the RECORD a perceptive analysis of the President's speech by Haynes Johnson in the Washington Post this morning and the text of the speech as released by the White House.
The material follows:
CARTER ON INFLATION: A DELIVERY MORE FORCEFUL, A MESSAGE MORE INTERESTING
On the eve of the president's anti-inflation address the network television cameras captured a telling vignette for the national audience. They showed gold traders clamoring loudly over bids as prices rose while a market analyst stood in the foreground explaining what was happening.
The market was reacting favorably, he said, because of the conviction the president would not take strong action such as recommending wage and price controls. In other words, he went on, the president won't take steps to affect the long-term consequences of inflation. Ergo: let 'er rip. Get it today, the hell with tomorrow. Even in these cynical times that was a singularly candid expression of the doctrine of selfishness — and thus worth pondering alongside the president's words yesterday.
Jimmy Carter's speech on inflation to the newspaper editors came one year, less a week after he delivered his nationally televised "moral equivalent to war" address on energy. The differences between those two speeches are striking — in tone, delivery, and content.
Then the president began somberly, starkly. "I want to have an unpleasant talk with you about a problem that is unprecedented in our history,"he said. "With the exception of preventing war, this is the greatest challenge that our country will face during our lifetime." He called for sacrifices, and warned that the alternative to action "may be a national catastrophe."
But his delivery belied his words: he was low-keyed, soothing almost.
Yesterday, the president began by accentuating the positive. He brought us good news: jobs were up, unemployment down, household incomes and business profits rising, and the rate of inflation being held within reasonable and predictable boundaries. Carter gave no martial summons, issued no grand appeal for sacrifice, flatly rejected wage and price controls, both now and later, and stressed the need for voluntary cooperation among business and labor and other private citizens.
But Carter's delivery yesterday was notably more forceful, and his message perhaps even more interesting. He was going to do what he could as president about inflation, he was saying, including the use of vetoes. And he was determined to set the government's own house in order as an example for the rest of the nation.
At the same time, he said, the idea that government can do it alone is a myth. He uttered no cheap homilies about such traditional American virtues as thrift triumphing in the end. There was no pleading for WIN buttons, WIN flags, and WIN gardens as in the Gerald Ford era when the president gave us the immortal prescription for solving inflation now by saying, in words printed in upper case to underscore their importance: "Grow more, waste less . . . drive less, heat less."
Carter's closing words were especially interesting, for they struck at the truly most difficult problems, those involving public attitudes and appetites.
"We all want something to be done about our problems — except when the solutions affect us. We want to conserve energy, but not to change our wasteful habits. We favor sacrifice, as long as others go first. We want to abolish tax loopholes — unless it's our loophole. We denounce special interests, except for our own."
And, his theme:
"No act of Congress, no program of our government, no order of my own can bring out the quality that we need: to change from the preoccupation with self that can cripple our national will, to a willingness to acknowledge and to sacrifice for the common good."
Whether Jimmy Carter's words will strike any response remains to be seen. One speech does not a policy make. Nor has the president spelled out, except in vague generalities, just what it is he expects of his fellow citizens. But it followed up by presidential deeds and further systematic candid reports on where we stand, he just might arouse public supports for action on what surely has become the scourge of these times.
The fact of inflation of ever-rising prices and increasing pressures for more and more and more, has become so imbedded in the weary public consciousness that it's hard to realize how relatively new a phenomenon we confront.
Just a decade age, as the war in Vietnam began to spread its poison throughout the American system, Lyndon Johnson held a press conference. He was asked about growing public dissatisfaction with the war and rising inflation. Always prepared, LBJ produced a chart he said he had had made for the press the night before.
The chart showed where consumer prices stood in 1960 for a number of key industrial nations. Since then, LBJ pointed out, prices had been rising dramatically. He crisply ticked off the figures — more than 40 percent in Japan, some 30 percent in Italy, 20 in France, about the same in the United Kingdom and slightly less in Germany. But for the United States — well, there we were, doing better than anyone.
"Our average price increase has been less than 1% percent a year," Johnson said proudly. "Rates in other countries have been at least double that. So the cost-of-living record of the United States is far superior to the performance of any other major industrial country."
The tragedy of the Johnson Presidency, of course, is that LBJ failed to ask for a tax increase to sustain the accelerating costs of Vietnam, driving us into a deadly inflationary spiral. That's a familiar story. What doesn't seem to be understood is a more significant aspect of the problem.
If the economic "experts" have any credence left (probably a dubious assumption) they make two generally telling points: it's the world, and not just the United States and selected industrial powers, that faces the perils of mounting inflation; and, these worsening problems represent something relatively new and ominous.
As one thoughtful scholar, Irving S. Friedman, puts it: "For many centuries, the phenomenon of rising prices, called inflation, was temporary." When inflation did occur, the causes were easily identifiable — and of short duration. Our own post-Civil War period, particularly in the conquered South; the devastation of Germany, after World War I, when barrels of marks were exchanged for loaves of bread, or of Russia after its revolution — these were the examples.
But an all-pervasive inflation is something that dates from the years after World War II. And, if people such as Friedman are right, we don't yet see "persistent inflation as a potential destroyer of societies" — as something, indeed, that moves like a plague from country to country, eventually infecting all.
Here's one citizen who doesn't expect the President to "solve" the problem. But he would welcome more Presidential accounting, and explaining, of where we are, what we face, and what actions we ought to take.
That kind of public Presidential followup was missing a year ago after Carter's "moral equivalent to war" speech. But the role of President as public educator and teacher remains open.
Who knows, it might even work.
TEXT OF THE ADDRESS BY THE PRESIDENT TO THE AMERICAN SOCIETY OF NEWSPAPER EDITORS
APRIL 11, 1978
During the last 15 months we in the United States have made good progress in sustaining growth and creating jobs. Four-and-a-half million more people are at work today than fifteen months ago. The unemployment rate has fallen from nearly 8 percent to a little more than 6 percent. Average household income, after adjustment for both taxes and inflation, is 5 percent higher now than a year ago. Business profits in the second half of 1977 were 15 percent higher than one year before, and during that time the inflation rate was held to a reasonable and predictable level.
But too many Americans — particularly young people and members of minority groups — are still without jobs. I am determined to sustain our economy's progress toward high employment and rising real income, with both existing programs and with new, carefully targeted incentives to encourage private business to hire the hard-core unemployed.
We have other economic problems which cause us continuing deep concern.
Our nation's economic health can be protected only if we can cope with the two developments that now threaten it most seriously — the high level of oil imports and the increasing rate of inflation.
These two problems both imperil our economic recovery and threaten the strength of the dollar, and they must be controlled.
The steps that we will take are part of a wider international effort by the major industrial nations to promote world recovery in 1978. In this effort, each country has a role to play — with the U.S. maintaining its growth while attacking inflation and limiting oil imports, other countries achieving their growth targets, and all countries avoiding protectionism and providing greater aid to developing countries. In the hope that this concerted approach will make a large contribution to world recovery, I joined the leaders of six other nations yesterday in announcing that we will meet on July 16 and 17 in Bonn to press ahead with our common efforts.
But the first requirement is effective action within each nation.
The primary reason for our problems with the balance of trade and the decreasing value of the dollar is no mystery. Ten years ago we were paying roughly $2 billion for imported oil. This year oil imports will cost us more than $45 billion.
Our energy problems are no longer theoretical or potential. They are an active threat to the economic well being of our people.
Of all the major countries in the world the United States is the only one without a national energy policy, and because the Congress has not acted, other nations have begun to doubt our will. Holders of dollars throughout the world have interpreted our failure to act as a sign of economic weakness, and these views have been directly translated into a decreasing value of our currency.
The falling dollar in international monetary markets makes inflation worse here at home. It raises the price of goods we import, and this makes it easier for domestic producers to raise their own prices as well.
That is why we must have meaningful energy legislation without further delay. Our security depends on it, and our economy demands it. If Congress does not act, then oil imports will have to be limited by administrative action under present law, which is not the most desirable solution.
One way or the other, oil imports must be reduced.
Recently our healthy and sustained economic growth has exceeded that of most other nations who are our major trading partners, so we have been better able to buy their goods than they have to buy ours.
Our standard of living and our ability to grow depend on the raw materials and goods we import from other countries. Therefore, to prevent further serious trade imbalances, we need to export more agricultural products and other goods and services to pay for our purchases abroad.
A Cabinet-level task force, chaired by the Secretary of Commerce, will develop additional measures to promote exports, and will report back to me within 60 days.
Now I will discuss the steps we must take to protect our national economic growth and the jobs and prosperity of our people from the threat of growing inflation.
Conserving energy, increasing efficiency and productivity, eliminating waste, reducing oil imports and expanding our exports will help to fight inflation; but making that fight a success will require firm government policies and full private cooperation.
The inflation we are suffering today began many years ago and was aggravated in 1973 and 1974 by a quadrupling of OPEC oil prices, widespread crop shortages, Soviet grain purchases, substantial devaluation of the dollar, and a worldwide industrial boom that led to double digit inflation in the United States and around the world. It now has become embedded in the very tissue of our economy. It has resisted the most severe recession in a generation. It persists because all of us — business and labor, farmers and consumers — are caught on a treadmill that none can stop alone. Each group tries to raise its income to keep up with present and anticipated rising costs; eventually we all lose the inflation battle together.
There are no easy answers. We will not solve inflation by increasing unemployment. We will not impose wage and price controls. We will work with measures that avoid both extremes.
Our first and most direct efforts are within government itself. Where government contributes to inflation, that contribution must be lessened; where government expenditures are too high, that spending must be reduced; where government imposes an inflationary burden on business, labor, and consumers, those burdens must be lightened; wherever government can set an example of restraint and efficiency, it must do so.
The budget I have proposed for the next fiscal year is both tight and capable of meeting the nation's most pressing needs. The prospective deficit in that budget is as large as we can afford without compromising our hopes for balanced economic growth and a declining inflation rate. As always, pressures are developing on all sides to increase spending and enlarge that deficit.
Potential outlay increases in the 1979 budget which are now being considered by Congressional committees would add between $9 billion and $13 billion to spending levels next year. The price of some of these politically attractive programs would escalate rapidly in future years. I am especially concerned about tuition tax credits, highway and urban transit programs, postal service financing, farm legislation, and defense spending.
By every means at my disposal, I will resist those pressures and protect the integrity of the budget.
Indeed, as opportunities arise, we must work to reduce the budget deficit, and to ensure that beyond 1979 the deficit declines steadily and moves us toward a balanced budget. I will work closely with the Congress and, if necessary, will exercise my veto authority to keep the 1979 budget deficit at or below the limits I have proposed.
The Federal government must also act directly to moderate inflation.
Two months ago I proposed that in each industry and sector of the economy wage and price increases this year be voluntarily held significantly below the average increase for the two preceding years — an important principle of deceleration.
I am determined to take the lead in breaking the wage and price spiral by holding Federal pay increases down. Last year, Federal white collar salaries rose by more than seven percent. I intend to propose a limit of about 5.5 percent this year, thereby setting an example for labor and industry to moderate price and wage increases. This year I will also freeze the pay of all Executive appointees and members of my senior staff. I believe that those who are most privileged in our nation — including other executives in government and in private companies — should set a similar example of restraint.
State and local governments employ every seventh worker in our nation and I have sent letters to every Governor and to the Mayors of our larger cities asking that they follow the Federal example and hold down their pay increases. I have also asked that if those governments plan to reduce taxes they first consider lowering sales taxes, which add directly to the consumer's burden.
The Federal government will take several other steps to reduce inflation:
All Executive Branch agencies will avoid or reduce the purchase of goods or services whose prices are rising rapidly, unless by so doing we would seriously jeopardize our national security or create serious unemployment. I am also asking that all new or renegotiated Federal contracts which contain price escalation clauses should reflect the principle of deceleration.
We must cut the inflationary costs which private industry bears as a result of government regulations.
Last month I directed Executive regulatory agencies under my control to minimize the adverse economic consequences of their actions. I am determined to eliminate unnecessary regulations and to ensure that future regulations do not impose unnecessary costs on the American economy. Our efforts to reorganize the Federal bureaucracy and to streamline the Civil Service will help us put the government's house in order.
I support "sunset" legislation to ensure that we review these regulatory programs every few years, and eliminate or change those that have become outdated.
I also urge Congressional budget committees to report regularly to the Congress on the inflationary effect of pending legislation, much as the Council of Economic Advisors and the Council on Wage and Price Stability now report to me.
The combined actions of my Administration and the Civil Aeronautics Board have already led to substantial cuts in some airline passenger fares. Despite the opposition of private interests, the airline regulatory reform legislation must be enacted this year. We are also reexamining excessive Federal regulation of the trucking industry, an effort which may result in increased efficiency while reducing freight transportation costs and retail prices.
In addition, I am asking the independent regulatory agencies to try to reduce inflation when they review rate changes, and to explore regulatory changes that can make the regulated industries more efficient.
Last fall, major new legislation was passed which will improve economic conditions for farm families, and we have announced additional administrative action to raise farm income this year.
Unfortunately, the Senate has just passed a bill that would raise food prices by 3 percent and the overall cost-of-living by .4 percent, shatter confidence in the crucial export markets for America's farm products, and cripple American farm families through increased costs. It is bad for farmers, bad for consumers, and bad for our nation.
I will veto any farm legislation, beyond what I have already recommended, that wouldlead to higher food prices or budget expenditures.
Housing construction rates have been at a high level and costs have risen rapidly, partly because of sharp increases in the price of raw materials such as lumber. Since lumber accounts for one-fourth of the total cost of a new house, we can obtain some relief by increasing production and using our existing lumber output more efficiently. Therefore, I have instructed the Departments of Agriculture and Interior, the Council on Environmental Quality, and my economic advisors, to report to me within 30 days on the best ways to sustain expanded timber harvests from Federal, State and private lands, and other means of increasing lumber yields in ways that would be environmentally acceptable, economically efficient and consistent with sound budget policy.
Daily hospital costs have jumped from $15 in 1950 to over $200 today, and physicians' fees have risen 75 percent faster than other consumer prices. It is very important that Congress act now on the proposed Hospital Cost Containment Bill as the most effective step we can take toward reasonable hospital prices. Failure of Congress to act on the Hospital Cost Containment legislation will cost the taxpayer more than $18 billion in needless government spending over the next five years.
Together with the airline deregulation bill, this is one of the two most important measures the Congress can pass to prevent inflation.
These measures have so far been delayed by the opposition of powerful lobbying groups. I will continue to give this legislation my full support, and I call on the leaders of Congress to do the same.
Such government actions as I have discussed today can be important steps toward controlling inflation. But it is a myth that the government itself can stop inflation. Success or failure in this overall effort will largely be determined by the actions of the private sector of the economy.
I expect industry and labor to keep price, wage and salary increases significantly below the average rate for the last two years. Those who set medical, legal and other professional fees, college tuition rates, insurance premiums and other service charges must also join in. This will not be easy. But the example of Federal action must be matched. Inflation cannot be solved by placing the burden of fighting it only on a few.
The Council on Wage and Price Stability recently began a series of meetings with representatives of business and of labor in major industries such as steel, automobiles, aluminum, paper, railroads, food processing, communications, lumber and the postal services. In consultation with the private parties the Council will identify the rate at which prices, wages and other costs have been rising in recent years, the outlook for the year ahead and the steps that can be taken to reduce inflation.
Let me be blunt about this point. I am asking American workers to follow the example of Federal workers and accept a lower rate of wage increase. In return, they have a right to expect a comparable restraint in price increases for the goods and services they buy. Our national interest simply cannot withstand unreasonable increases in prices and wages. It is my responsibility to speak out firmly and clearly when the welfare of our people is at stake.
Members of my Administration have already discussed this deceleration program with a number of leaders of labor, business and industry. They have promised their cooperation. Later I expect to meet with business and labor leaders to discuss contributions that they can make to help slow the rate of inflation. One of the most important contributions they can make is to show that restraint applies to everyone — not just the men and women on the assembly line, but also the managers in the executive suites. Just as I will freeze the pay of the top executives in the Federal government, the American people will expect similar restraint from the leaders of American business and labor.
I am determined to devote the power of my office toward the objective of reduced inflation. Our approach must be flexible enough to account for the variations in our complex economy — but it must be comprehensive enough to cover most of the activities of our economy.
In the long run, we should develop special programs to deal with sectors of the economy where government actions have the greatest potential for reducing inflation. These include housing, medical care, food, transportation, energy and the primary metals industries. The members of my Cabinet will work individually and with the Council on Wage and Price Stability to develop and to announce early action to reduce inflation within their own areas of responsibility.
To accomplish our deceleration goals in the private sector, I am asking my Special Trade Representative, Robert Strauss, to take on additional duties as a Special Counselor on Inflation. He will work with me, with Treasury Secretary Blumenthal, my chief financial spokesman, with Charlie Schultze, the Chairman of the Council on Wage and Price Stability and its Executive Director, Barry Bosworth. He will have specific authority to speak for me in the public interest, and will be a member of the Steering Committee of the Economic Policy Group under the chairmanship of Secretary Blumenthal.
Reducing the inflation rate will not be easy and it will not come overnight. We must admit to ourselves that we will never cope successfully with challenge until we face some unpleasant facts about our problems, about the solutions and about ourselves.
The problems of this generation are, in a way, more difficult than those of a generation before. We face no sharply focused crisis or threat which might make us forget our differences and rally to the defense of the common good.
We all want something to be done about our problems — except when the solutions affect us. We want to conserve energy, but not to change our wasteful habits. We favor sacrifice, as long as others go first. We want to abolish tax loopholes — unless it's our loophole. We denounce special interests, except for our own.
No Act of Congress, no program of our government, no order of my own can bring out the quality that we need: to change from the preoccupation with self that can cripple our national will, to a willingness to acknowledge and to sacrifice for the common good.
As the nation prepared for the challenge of war, Walter Lippmann addressed these words to our nation forty years ago:
"You took the good things for granted," he said. "Now you must earn them again. It is written: for every right that you cherish, you have a duty which you must fulfill. For every hope that you entertain, you have a task you must perform. For every good that you wish could happen . . . you will have to sacrifice your comfort and ease. There is nothing for nothing any longer."
These words of admonition apply to us now.